This blog has been sparked by a post by user “dowdie” over at The Trade Lounge. You can view the forum thread here. (Registration is required)
Because of the enforcement of IR35 in its most stringent sense from April 2020 clients of IT contractors are becoming responsible for their employment and tax status. This means that IT contractors saying they must go on to the same basis as the permanent employees at their clients. IT contractors are unhappy naturally. IT contractors have been getting stiff letters from clients, which say go on to permanent employee payroll or “walk the plank”. I have seen two of these letters from two different clients. They make no bones about this and there appears no room for manoeuvre.
So IT contractors and the like get hammered for tax. Rates for these people vary from £150 per day to £1500 per day depending on skill set. You could argue that they deserve it, but they take a lot of risks that staff do not take. They have other costs that permanent employees generally do not have to pay from their own pockets too. Being an IT contractor can be an expensive business.
IR35 has been around since 2000 so all contractors have had ample time and opportunity to change their attitudes and modus operandi. 19 years is a long time and it seems that so few contractors have changed from an hourly or daily rate to something like fixed price project work. Enough contractors changing might have changed the playing field.
So what can the contractor do if they do not want to join a permanent payroll?
Firstly, look at changing the business model. A service or subscription model might work as might fixed price schemes of work. For the IT contractors changing the range of services offered to those that cannot be offered on an hourly or daily rate could be a good move.
People on the thread in The Trade Lounge have suggested changing career and this can be done but it quite late to be looking at this in terms of April 2020, however it is a good candidate for consideration, especially if setting up or acquiring a business or maybe in the mix. I cannot give careers advice on being a permanent member of staff.
Remember though that there might be a large number of IT contractors with the same thoughts. So the market value for businesses which might not mean too much financial pressure for contractors (say, less than £75,000) might rise slightly. I think an uplift of 4-6% is reasonable. A gentle guide to buying lifestyle businesses is available here. [Download not found] No sign up needed. There are options and free wanted adverts are available in the Year End Special of The Trade House Magazine for contractors seeking new ventures. These can be accessed by using the contact form at the bottom of this blog.
Franchising is another option. With this you get the backing of a recognised brand but I am concerned for the wider time frame. You see if the government can go after IT contractors by saying that they are effectively glorified employees then why not go after franchisees by saying that they are glorified employees of the franchisor. I think any move by the government in this regard would happen in the 2023-2028 time frame. This would put large franchise fees at risk. Initial Franchise fees are anything from £5000 – £500,000 generally.
Either way the government are hell bent on destroying contracting .I do feel sorry for the people caught in this and wish them the best for their futures. I am pleased I left that world many years ago.