by GK Strategy 1st November, 2018

IR35 reforms – the upside for responsible businesses & investors

The Chancellor announced expected, but significant, changes to the taxation of the self-employed in the Budget, in order to tackle “widespread non-compliance” on tax.

The potential problems with such reforms – but not the opportunities – have been written about at length. Thousands of companies and workers will have to reconsider their working arrangements, invoicing and payroll systems, and tax position.

The reforms won’t be implemented until April 2020, so there is still time for business to influence the Government, especially as it separately announced that it will publish a “further detailed consultation on the full proposals next year to ensure stakeholder needs inform the legislation.”

Becoming a responsible employer and engager

Amid the reforms, there are opportunities for firms, to establish themselves as responsible employers and engagers of freelance workers and contractors.

Any organisation engaging workers will need to demonstrate that they are applying the new rules consistently, fairly and transparently. Effective communications and clear and accurate guidance will be essential – to clients, suppliers, associates and other stakeholders.

Companies – and the recruitment and sourcing agencies they use – have a great opportunity to demonstrate that they are not only well prepared for the new compliance requirements but that they are determined to put their workers – and the agencies that they use – on a more stable and transparent footing.

Responsible supply chain agendas need to embrace contractors

Responsible procurement and supply chain management has been a key sustainability pillar across every sector. While the agenda has focused on workers’ rights, it has rarely touched on ensuring that non-employed workers in the supply chain are taxed in the right way and have the correct status.

The IR35 reforms should change this, helping to remove grey areas for workers, hirers and advisors alike.

The mid to large sized businesses subject to the reforms will have the opportunity to take a more responsible approach to their supply chains, ensuring that they only work with firms that engage with workers on the correct basis.

While the reforms will not apply to small businesses, it is likely that corporate customers will nonetheless want some form of reassurance that a small supplier’s contractor workforce is applying the rules properly (as the reforms will move the liability for determining employment status to organisations rather than individuals, except in small firms.)

Considerations for investors

Investors would be wise to consider whether the changes will have a material impact on the operations and cost base of firms with a very high proportion or a number of contractors.

From an ESG perspective, investors and their portfolio companies should consider whether they have, or will have, the systems in place to ensure compliance with the new rules. Investors’ due diligence and portfolio reviews should also reflect this.

We have been briefing investors, companies and recruitment/sourcing firms on IR35 including how they can best prepare and position themselves in the marketplace. If you would like to find out more about how GK can help you navigate the new environment, sign up to our newsletter.

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