Planned changes to IR35 in April next year are potentially going to have a seismic effect on public sector IT. How much depends on how prepared the sector is by then but now is the time to act.
It’s time to hit the G-Cloud and get to grips with what’s new in the Project Management as a Service (PMaaS) market.
Briefly, here’s what’s about to happen distilled to its very essence in a paragraph.
IR35 is a piece of tax legislation that exists to decide if a contractor operating as a small Personal Service Company (PSC) is behaving like an employee or a contractor and make sure they pay tax accordingly. The big change set for April 2017 is that it will be whoever engages the talent that determines this. If that’s you, and it is later deemed that you called it wrong it will be YOU who is liable for the tax.
Public sector contractors are incandescent. On average, they have less security than employees and they don’t get holiday or sick pay or many of the other perks that come with being on the payroll. As it stands, this will not change after April next year, even if it is deemed by the hiring organisation that the contractor is engaged like an employee, they won’t be required to treat them like one.
On the one hand, you can see why they’re up in arms. On the other, you can see how PAYE taxed employees get vexed sharing an office with someone doing the same job as them, even brewing up from the same kettle as them but paying less tax and National Insurance and often getting to claim back their mileage for the commute into work.
There is a bit of moral question here. Everyone is banging on about big companies avoiding tax. A small Personal Service Company (PSC) perhaps with only one director, a specialist in their field, doing 6-month assignments here and there, is clearly behaving like a proper company. If this legislation drives this type of person out of the market, that’s not great. At the same time, a long term, never move contractor sat next to a permanent employee, doing the same job for two years could be argued to be rather letting the side down. You could argue they have no employment rights, have higher risk etc., but the longer the contract goes on the more that argument is watered down.
Similarly, some firms and public sector bodies only offer contracts on this basis to avoid commitment, employee rights and dare I say employer’s national insurance contributions. This kind of practice from hirers is also rather out of kilter.
Employees, contractors and the tax payer deserve fairness. Contractors are an important part of the supply chain, but there does need to a levelling of the playing field in everyone’s interest.
Setting aside the PAYE staff and the SA302 army to battle that one out, I am more concerned about the impact that this change will have on public sector IT. Many analysts are predicting a skills shortage in public sector IT and it’s hard to find a case to disagree with them.
Many contractors are saying that they will simply move out of the public sector and work exclusively with private firms who will be exempt from the changes (for the time being at least – but you imagine it will only be a matter of time before the tax man switches attention that way too).
The public sector is engaged in some really important IT Projects. These are projects that deliver services at the cutting edge of society, many are crucial to the health and wealth of the nation.
Whereas business case aligned private sector IT Projects deliver return on investment measured on a profit sheet, public sector IT projects often get benefits to the needy, healthcare to the sick and government services to those who rely on them. The last thing this sector needs is a skills shortage.
It’s more than that, though.
Faced with a skills shortage, because of the importance of these projects, public sector IT buyers are going to have to look for ways to plug gaps. If they default to the big half a dozen IT consulting firms, where costs will be higher, the government could ironically recoup more tax only to squander it paying more for IT.
The smarter alternative would be to turn to the G-cloud. On the government’s IT procurement programme, there are IT firms providing IT advisory and Project Management as a Service using permanent staff so IR35 does not apply and there is no risk. PMaaS could fill any gaps that IR35 changes create. In fact, as firms on the G-Cloud are ready to trade with the public sector you can make arrangements now that ensure that you are ready to weather the ensuing storm.
Beyond the cost, there’s the hassle that comes with this new responsibility.
The test of a contractor’s IR35 compatibility is currently woollier than a Christmas jumper. There are some criteria that determine whether your contractor is behaving like a ‘proper’ supplier, for instance, can they put in a substitute worker and can they choose their own hours of work, but the question of whether they are they subject to supervision, direction and control of the end client is a nonsense. Under guidelines, if they are, they are behaving like an employee. You show me an IT Project where contractors are not subject to sponsor supervision, direction and control and I’ll show you a project that’s about to contribute to those regularly quoted failure statistics.
With PMaaS you get accountability, assessments, governance, tools as well as people to improve your delivery capability and performance, often with no net increase in the overall portfolio costs and best of all no need to worry about IR35.
You may also find that when you engage the right Project Management as a Service you find yourself relying less on contractors. You may enter a world of predictable cost models, high-quality Project Delivery and cultural alignment that actually improves your in-house capabilities.
IR35 may be the cause of a skills shortage and runaway costs that scupper your public sector IT Projects.
Alternatively, it could be the stimulus of a rethink, an opportunity to try a new way.
Something scary, or something exciting. Ultimately, the choice is yours.
To repeat myself … “Planned changes to IR35 in April next year are potentially going to have a seismic effect on public sector IT. How much depends how prepared the sector is by then but now is the time to act.”
Time to choose.
We’ll see you on G-Cloud.