The energy sector is likely to be amongst the most affected by the private sector IR35 reform when it’s rolled out on 6th April 2020. Like the financial and pharmaceutical sectors, the energy sector relies heavily on flexible, highly skilled workers. However, thanks to both HMRC’s somewhat chaotic approach to administering the off-payroll rules in the public sector, and large private sector companies either pushing contractors to PAYE unwillingly or culling them altogether (HSBC, Lloyds, and Barclays, just to name a few), it’s easy to see why contractors, recruiters and end-clients are feeling apprehensive.
Don’t put your head in the sand; there are many things you can do in the next 6 months to make sure you’re in the best position possible when the reform hits, no matter where you sit in the supply chain.
How will the IR35 reform impact the energy sector?
Deborah May of Energy Voice reflected on the legislative changes, as confirmed in the Autumn Budget last year, would bring to the energy sector.
‘Until relatively recently, the use of PSCs within the oil and gas industry was an exceptionally common and accepted structure. Many projects were being delivered with workforces that comprised of both staff and individuals contracting through PSCs.’
‘The use of PSCs in the UK oil and gas industry suited both the individual contractor and the end-user business, with the structure providing flexibility for both in terms of contract duration, which is particularly useful for project-based work. In addition, businesses that engaged with PSCs were able to contract with certainty on costs – usually via an agreed fixed day rate – and the PSC bore the liability for determining and paying any PAYE (“Pay As You Earn”) or NIC (“National Insurance Contributions”) obligations under the IR35 legislation.’
While the IR35 reform certainly doesn’t have to mean the end of this kind of arrangement or even the use of PSCs, the energy sector may well see a drop in contractor engagement in the run-up to April 2020. We’ve written before on why blanketing to PAYE or outright contractor culls aren’t as risk-averse as private sector businesses may think - the same sentiment applies in the energy sector.
How can the energy sector prepare for the IR35 reform?
To continue the current mutually beneficial working setup, energy sector contractors, recruiters, and end-clients must each take responsibility for their part in preparing for IR35. Communication and transparency throughout the process are key, so let’s take a look at what each facet of the supply chain should keep in mind over the next 6 months.
Energy sector contractors
The most important thing for energy sector contractors to do is get a professional, unbiased contract and working practices review before April 2020. It’s the working practices review that’s key; while contract reviews are a great indicator as to your IR35 employment status and can be used in a tribunal as evidence, it’s your working practices that HMRC will scrutinise should you undergo an enquiry. Make sure you fully understand your position and take heed of any feedback from your IR35 consultant.
Educating yourself about IR35 is also key. While the status determination liability will move from you, the contractor, to the fee-payer in April, it’s perhaps even more crucial that you’re aware of your situation and up to date on the legislation.
Read more about your IR35 responsibilities as a contractor here.
Energy sector recruiters
While some recruitment agencies in the industry may be concerned about placing contractors becoming more difficult in the coming years, contracting is still very much on the rise (according to these 2019 stats from IPSE). The energy sector, in particular, is a close-knit community and word travels; if, as a recruiter, you understand the IR35 reform and are being proactive, you could find that business improves.
Make sure you take reasonable care in assessing current arrangements for each client, have open discussions with both contractors and end-clients about IR35, put determination and communication processes in place for future engagements, and ensure that your team is up to date with the legislation and can offer accurate advice to worried clients. You should also be aware of the Key Information Documents and what they mean for everyone in the supply chain.
Read more about your IR35 responsibilities as a recruiter here.
Energy sector end-clients
Understandably, many medium-large companies that engage contractors are concerned by the IR35 reform – or more specifically, the shift in liability that comes with it. While other contractor-heavy industries, like the financial and pharmaceutical sectors, are more often than not taking an overtly risk-averse stance, the energy sector may be more deeply affected should it lose its skilled workforce.
It’s a sticky situation for many, and it’s often unclear on what the best way to proceed is. However, you have a responsibility to your engaged contractors to ensure a fair, considered status determination is given. Follow the same guidance given for recruitment agencies above, as well as identify a set person within your company to make status determinations and decide how payments should be made to contractors found inside IR35. It may also be a good idea to assess complex labour supply chains that could prove risky, the potential financial impact of IR35 on your company, and review internal systems like payroll software, process maps and HR policies to make sure they’ll be compliant come April 2020.
Read more about your IR35 responsibilities as an end-client here.
Larsen Howie insurance and advice for the energy sector
Should you want some peace of mind, we offer a full contract review amongst other services to help you prepare for IR35. We’ll give a pass or fail based on the current contract you hold, along with comprehensive comments on how to improve any problem areas. You can read about our different review options, and which one would be best for you, here.
Besides IR35 consultancy and insurance, we have a tailored product that offers energy sector contractors comprehensive cover under one easy to manage policy. Larsen Howie’s Energy Sector Combined insurance includes cover at varying levels for public liability, employer’s liability, professional indemnity, and directors’ and officers’ liability.
For any further information or advice, please call us on 01163 800 400 or drop us an email. Alternatively, take a look around our Knowledge Hub for more IR35 advice, industry news and contractor guides.