Multinational private sector tech goliath IBM can be added to the IR35 naughty list after reportedly announcing its intention to push all currently engaged contractors to PAYE or umbrella companies. Limited company contractors – otherwise known as PSCs – can expect this to come into effect from the end of March.

While this news has sadly stopped being a surprise thanks to the likes of HSBCMorgan Stanley, M&G Investments, and pharma giant GlaxoSmithKline, this risk-averse knee-jerk reaction to the looming IR35 reform should be the exception, not the rule.  

IBM contractors speak out about IR35 push to PAYE

While speaking anonymously to Computer Weekly, IBM contractors revealed that official IR35 briefings had begun on Monday 13th January – just last week. The move has been described as ‘taking the path of least resistance’ and is a transparent attempt to shift any liability from themselves to a third-party fee-payer. However, the tech titan should beware of contractors taking their specialist skills to competition that is willing to invest in fair employment status assessments.

Andy Vessey, Head of Tax at Larsen Howie and cornerstone IR35 case Jensal Software defence, reinforces this warning.

“If IBM expects contractors to provide their services at the same rates, then they could face a skill haemorrhage,” Vessey says. “These workers want a fair rate of pay and if they are to suffer PAYE tax and NIC deductions, then they are likely to want their current rates enhancing to compensate.”

“If IBM is forced to accede to such demands, then they are shooting themselves in the foot,” he continues. “If they had just taken the time to properly engage with the new rules, they may well have discovered that a good percentage of their contingent workforce are bona fide self-employed and save themselves a fair amount of money into the bargain.”

“It appears that potential perceived reputational damage, in the event that HMRC are able to successfully challenge the status of their workers, is at the heart of these lazy decisions.”

IBM will regret IR35 contractor cull in the long run

Despite all the bad press surrounding IR35 and the general treatment of the self-employed by the government in recent years, April 2019 employment figures show that the self-employed sector has grown by 76,000 in the last year. From specialist project management through to aiding with particular aspects of IT transformation, organisations will always need to draft in highly-skilled help. However, it’ll take work from clients, recruiters, and contractors to preserve this smarter way of working in the face of IR35.

“It is very disappointing to see yet another push towards PAYE from IBM, one which they will likely regret in the long term,” says Nicola Hayman, Legal Manager at Kingsbridge Contractor Insurance.

“The news will have done little to alleviate the fears of some employers,” Hayman continues. “However, both hirers and recruiters should view the new landscape as a prime opportunity to look at the recruitment supply chain and review how work gets done more generally.”

“Pragmatic end clients will be happy to engage contractors outside of IR35 and will work with the supply chain to determine the status of these individuals, helping overcome reasonable care requirements whilst continuing to benefit from flexible, agile, highly-skilled workforces.”

How can private sector companies like IBM get ready for the IR35 reform fairly?

“It is once again disappointing that a large end-client like IBM is opting to take the ‘easy route’ when dealing with IR35, rather than working with contractors to determine a truthful position on a contractor’s IR35 status – whether inside of IR35, or outside,” says Matt Tyler, Larsen Howie’s IR35 Consultancy Manager.

“The message that needs to be conveyed here is that it is entirely possible for contractors to continue operating outside of IR35 after the 6th April 2020. End clients should not simply knee-jerk contractors inside of IR35 as this will doubtless damage their reputation with contractors.”

There are steps you can take, no matter where you sit on the supply chain, to make sure you’re ready for the changes; contract and working practices reviews are the first port of call while educating yourself about what the off-payroll rules mean for you is crucial to staying on the right side of the legislation.

However, the most important thing to remember when preparing for IR35 is that collaboration is key. Maintain good communication during the whole process and encourage openness throughout the supply chain to minimise the potential for any nasty surprises.

Larsen Howie offers a range of contract and working practices reviews – you can find out which option would be best for you here. We also offer IR35 investigation insurance with representation from Andy Vessey, should it go to tribunal.

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.

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