IR35 won’t hit until 2020 – but the shockwaves are already rippling out

Although IR35 doesn’t come into force until April 2020, it’s already creating shockwaves. One major banking name is eliminating the risk of non-compliance by demanding that contractors leave or join in a permanent role. As organisations choose whether to follow suit or continue weighing their options, the effect of the new legislation continues to ripple across the financial sector. For Green Park’s Kirsten MacLeod, it’s an extraordinary situation – and one that’s thrown up a host of questions and implications.  

Kirsten is Director of Green Park’s Financial Services Interim & Executive Search Practice. With 25 years’ experience in the global recruitment industry, she brings outstanding expert insight.

IR35 – the background

IR35 was introduced in 1999 to combat false self-employment. In 2017, the rules were updated because the government believed that thousands of people weren’t complying with the legislation and therefore paying less tax and National Insurance than they should be. The key change is that the client determines whether a role falls inside or outside IR35.

The reforms are set to bite in April 2020, having been rolled out across the public sector already. However, critics of IR35 claim the legislation is flawed and needs to be re-thought.

Contractors issued with “Leave or join permanently” ultimatum  

With no sign that the Government is prepared to revise IR35, Kirsten has seen several financial businesses pre-empting the legislation by telling contractors to ‘leave or join permanently’. This extreme approach has come as a shock for contractors and others in the sector and Kirsten believes it could stem from a number of concerns – or hide ulterior motives:   

“This draconian approach could be an excuse to clear out interims and contractors who have been there a long time when a permanent person could have been hired. Or it may be that businesses are finding the cost and challenge of policing IR35 rules too overwhelming. They may also doubt their hiring managers’ ability to make the right calls while the reforms are still new and untested. But ultimately, banks are naturally more risk-averse, which could explain why they’ve reacted in a more dramatic way.”

Benefits for the brave?

However, not every bank has chosen to take such drastic evasive action. One institution has told its contractor workforce that it’s committed to exploring solutions related to IR35. Kirsten believes this softer line may make life more complex for the organisation – but it could also result in hitting the talent jackpot. “If this bank makes an effort to continue using contractors, it could find itself with the pick of the talent,” she explains.

Interim extinction?

However, for those that find themselves on the wrong side of IR35 legislation, the penalties can be severe. And that could have a chilling effect on the industry, according to Kirsten.

“In the future, contractors could find that the pool of jobs shrinks as employers shy away from offering interim roles. And businesses could then find that the volume of flexible resources they once enjoyed no longer exists.“

Could banks change their hardline stance once IR35 is bedded in? “It’s possible,” says Kirsten. “And the legislation could even be dropped if there’s a general election or a hard Brexit.”

With so many unknowns still in the mix, it seems the best strategy is simply to watch and wait.

For more information about Green Park’s Financial Services team, visit sectors/financial-services/