IR35 reform came into force in the private sector on 6th April 2021 after facing a year-long delay, placing the responsibility for determining IR35 status on the businesses which engage this vital resource. Our recent article 'Six months on from IR35 reform' explores what has happened since, but to truly understand the impact, we need to look at how the fallout of these changes was felt by those most affected: the contractors.
One of the many contractors impacted by IR35 reform, Neil shares his honest account below about the reality of contracting post-IR35 reform and how this has affected his plans for the future.
"Back in early 2020 I was in the middle of an amazing experience at a large multi-national corporation, on their largest programme and providing a range of services that saw me liaising with everyone from C-suite to ’shop floor’, and this is where my skills are; working across these areas where some individuals only work at C-suite level or only work at people management level or shop floor level."
"Back in 2004 I had been working for 10 years at a large [telecommunications company] and was finally offered a more senior position after successful interviews. However my expected trajectory was cut short as the company had other employees they needed to map into new roles rather than make redundant. My dream job was given to someone who I had worked with previously and I knew had little skill in, and also did not have the interpersonal skills the role demanded. I actually ended up being asked to coach this person and they were disastrous in the role. This wasn’t because they were trying hard but lacking in skill but rather they only saw the role as a stopgap in their own eager climb up the corporate ladder."
"This was a turning point for me and made me question my longer term ambitions. I concluded that climbing the ladder wasn’t for me, I wanted to carry on in my role but work my way to the top in terms of being the best at it. After 12 months of zero change in my prospects at that corporation, I handed in my notice having decided to go contracting, and what a rude awakening I was in for!"
"Within 10 days I had started a contract at another large [telecommunications company] and was busy setting up my limited company etc. I was very nervous not knowing what to expect and recognising that contractors usually are expected to ‘hit the ground running’. I joined a team of around 40 contractors on a huge delivery of customer self service portals and was so shocked at the chaos. Clearly some of the more vocal individuals who knew senior managers there had ‘assumed charge’ over the work but seemed more desperate to orate than roll up their sleeves. Structure and objectivity were not things these people focused on, they wanted to be considered the ‘gurus’ that the senior management needed to rely on. I worked with an amazing guy who is still great friends with me today. After the initial chaos we managed to ringfence some work by approaching one of the managers and proposing a better way. He listened and gave his full support, seeing the value. Within 6 months we were realising huge benefits from our work where much of the other work had lurched along and not really delivered. Although the project was closed down eventually our work continued and we were asked to continue providing services."
"A full 15 years later and I had learned a lot and worked across many organisations. My principles always mattered to me in spite of what I have sometimes been told by others. First of all I treat clients the way I like to be treated, secondly although lucrative contract work is good I have never just chased the money, preferring to be remembered for the way I work and the values I hold. This has often paid off anyway with old clients remembering how I have conducted myself. Having said this my principles were really going to be put to the test."
"So back to early 2020 and all the UK contractors at this large multi-national corporation were aware of the incoming IR35 reforms, but the corporation were being cagey, we were given virtually no information. A slide deck got out though which set out options that were being considered but an email followed within hours demanding that all recipients delete it and email a response to confirm they had deleted it and would not share its content. As you can imagine the slide deck getting out may not have been great but instead of engaging with contractors and using the opportunity positively, the response demonstrated that no such approach was going to be employed."
"Eventually in February 2020 I was informed via email that with immediate effect I was being given notice and that my contract would end on 31st March just before the date the government had set for IR35 reform introduction. Even when the government postponed it by 12 months the corporation would not reconsider. I was once asked by a manager there how things were going with the impending changes and I just opened up a little bit, explaining that it was stressful not knowing what was going to happen next. His response was forthright lecture on being grateful for having work, that we were paid far more than permanent employees etc. There was no point in me responding with anything more than saying yes of course permanent employees are having a tough time too."
"I then found out that a large consultancy had agreed to fulfil the services that myself and others on numerous projects were providing. These guys arrived on site in March and as I suspected most were graduate trainees with a handful of management to oversee them."
"I had started to reach out to agencies but Covid was just hitting and the market dried up for a few months. This resulted in me being out of contract until October. 6 months with no work. My wife is [a] full time mum with part time work but her work dried up too. We have some family with personal health issues such that we try to help them out, so for us contracting was a way to give back, and gave me the freedom of being my own boss."
"During the time out of work we used all our savings up but we felt like we could not open up about how we felt to anyone. I saw that those who did were seen as having a moan and being ungrateful, especially those rich contractors. Yet for us we were using any extra income to support a family member with dire health issues who is not provided with sufficient support from the government. But again, when you mention you are a contractor I think some people conjure up pictures of large houses, fast cars and big spending."
"Well, just in the nick of time I was offered a contract in the public sector. The net income was 50% what I had been earning previously but there were just no contracts out there to choose from and I was starting to worry. The contract was inside IR35 and via umbrella. Oh boy did it make me livid."
"I’d never worked via umbrella before, and in spite of choosing a large and reputable one, I was disgusted in the government pushing me to have to work this way when the umbrella with an army of lawyers was doing far more than I ever did via my limited company to ensure their tax bill was as streamlined as it could be. I don’t blame the umbrellas, they are doing what any switched on corporation will do, make money out of an opportunity. So here was I paying them an extortionate fee for ’services’ when most of their ’services’ were automated. I spoke to two people at the outset and sent two emails at the end of my assignment, other than that it was literally just offering payroll. But to have HMRC consider an umbrella to be a preferable scenario to multiple limited companies was shocking."
"My income meant big changes for us as a family, and I don’t mean changing from M&S to Lidl, I mean not being able to afford to run a car, having to get a lodger in so their rental would help with bills, and literally not being able to afford to take a day off. I would get anxious when public holidays came round as I knew my income was going to drop for that month. My wife was brilliant, by my side all the way and trying so hard to do part time work while also bringing up children."
"Eventually I accepted a new contract in the private sector on better pay, but inside IR35. Despite attempts to promote outside IR35 contracts, there really are not enough of them out there. This year I decided to shut down my limited company and have resigned myself to having to work via umbrellas for the foreseeable future. I see all around me contractors in the same position. And yes, some did previously have more disposable income, but because they paid less into pensions or into vehicles or houses and were sought after for their skills. Many of these people were the ones who would use this disposable income to go and buy on the high street, invest in a business, employ builders to renovate a house, or eat out."
"The new post IR35-reform world means that this disposable income now goes into the coffers of corporations instead, and yes into the pockets of the few on the board of directors in these companies. HMRC has created an anti-competitive situation as companies know they have you over a barrel as there aren’t sufficient outside IR35 roles to compete so the inside IR35 assignments are often not brilliantly paid. More importantly though I have seen that they are much more hierarchical in nature. No longer can I operate as an experienced and skilled consultant who has been brought on board specifically to be proactive, but instead I am to toe the line and take instruction. I have a limited remit. I have to work the assigned hours and in the assigned manner. I have to conform."
"This has left me completely stripped of my ability to compete as you cannot argue with the client on a role being inside IR35. So I either join a large consultancy where others dictate the terms, or I work inside IR35. Going permie is an option but one I don’t want to take as I am used to being my own boss now. Perhaps a role outside IR35 will present itself, but I just haven’t seen enough of them. I am considering a career change and a move overseas as I feel completely betrayed by HMRC, they seem to always help the big fish at the expense of the small fry. Many would argue that I am being overly dramatic and should just get a permanent job like everyone else, but I have spent over 15 years as my own boss and I thrived on it. Why should someone else tell me to get a permanent job over running my own business? My father worked for himself, and I aspire to be like him, but am currently forced into not being able to. Hence considering a career change into running my own business, but one that HMRC cannot take away from me."
"So what of my principles? Well, they were severely tested. But I don’t give in easily, and I still treat my clients (employers now) the way I like to be treated. It’s just that now I cannot step outside my assigned remit to really add value, indeed if I ever stray I am reminded that I must remain within those boundaries. I feel like the guy at the end of Goodfellas, except instead of gangstering, I was working honestly and was adding value to this country and to the coffers of HMRC."
"The one plus side of inside IR35 but via umbrella is at least I still don’t have to complete a quarterly performance review, that would really take the biscuit!"
As we await the outcome of the House of Lords inquiry into the performance of IR35 reform, we remain hopeful that voices like Neil's will be heard.
Similarly to the first inquiry, the inquiry promises to be a comprehensive and fair account of the changes. Having called for responses from impacted parties, the inquiry will touch upon the effectiveness of HMRC's CEST tool, the level of support provided to contractors and businesses by HMRC, and more.
For support and guidance with IR35 reform, please visit the IR35 Advice Centre or get in touch with our team who will be happy to help any way they can on 0116 269 0992.
Ask away! One of our team will get back to you!