What is IR35?
If you don’t know what IR35 is – it’s the legislation around whether a worker should be treated as an “off-payroll” employee or not.
My business is an ICT consultancy – this means I help my customers improve their ICT provision through providing expertise and advise, along with some design work and implementation support. Although historically I’ve worked with other small businesses to deliver my customer’s outcomes at the moment its just me.
Opportunities come along typically in the form of contracts advertised by recruitment agencies which are paid a day rate. I’d love to work with customers who want to pay for an outcome based on the value to them of that outcome – but that’s not typically how these opportunities are advertised.
Equally – its true to say that I’d love to find opportunities that involve direct engagement with the customer but my customers tend to be large public sector bodies and these don’t generally engage direct with a Micro Business such as mine but would engage either with an recruitment agency or a large consultancy who would then contract out the work.
Trying to put into words my feelings about the current approach to IR35 is hard without coming across as very negative.
Running a business, not cheating tax
I am in the business of running a business, my own business, not cheating tax, and I want that business win opportunities, in order to survive and thrive.
Recent changes to IR35 have placed the decision as to whether for any particular opportunity I am working for my business not with me but with the client. This is supposed to be assessed opportunity by opportunity based on the required work, the worker who is doing the work and how they are doing it. The financial risk of wrongly assessing this does not purely rest with the contractor but also with the client. Thus the majority of advertised contract opportunities are offered as inside IR35 because this reduces risk – meaning that I cannot deliver them through my business.
But if I don’t win more work then I fail as a business and will not ever be in a position to grow and employ more staff and generate legitimate tax revenue to pay to HMRC.
HMRC are aggresively pursuing small businesses and their clients where they perceive there has been a breach of the IR35 rules. It feels as though HMRC want to kill small businesses like mine. I’m sure that’s not the case but that’s how it feels.
Perhaps the way through this is to partner with other “contractors” and create a bigger business owned by multiple contractors? But I’m not sure even this would work – after all the line taken by many public sector bodies and likely to be followed by the private sector is that “the off-payroll rules will apply to any workers engaged through a qualifying intermediary, such as their own limited company” so if I even partly own the company I’m working through I can’t win this type of opportunity for my business.
I think the government needs to rethink how it supports small businesses to remove the barrier that IR35 has become and to also make it easier for small businesses / contractors to get into conversations with ICT and Digital Leaders in the first place.
Only a matter of weeks ago, the Chancellor at the time, Kwasi Kwarteng, has said he would repeal the recent changes to IR35. This would potentially have placed the decision as to whether a contractor / micro business was working as an employee of a larger business or as a separate business back in the hands of the contractor / micro business itself. However, now Kwasi Kwarteng is gone and it would appear that his planned reforms to IR35 are gone with him.
Where is the problem?
A lot of the support from central government for small business winning work with central and local government has been around making it easier to bid for work but in my opinion that’s not where the problem is…
AMDH Services Limited is already on several government frameworks – gCloud, Digital Outcomes and Specialists, Bloom NEPRO, and the Reed Consultancy+ framework – but when trying to compete on these I have to fight against big business to win anything and the way they are tendered (in my opinion) favours big business.
On Digital Outcomes and Specialists, for example, the tender process requires that you provide examples of where you have recently delivered to a similar requirement before. This obviously seems quite reasonable. But larger businesses are going to be able to provide many more examples than the one or two examples AMDH might be able to provide, due to their having more staff and thus being able to deliver multiple projects simultaneously.
On gCloud, for example, the tender process is completely invisible unless you win or are short listed for the opportunity. Potential suppliers on gCloud are filtered through a keyword search, so it’s possible to use the choice of keywords to arrive at the supplier the client wants to use and for competition to effectively be non-existent. I’m not suggesting that this happens in every case but it’s certainly open to abuse.
For me the problem is that if a large ICT consultancy or vendor calls a ICT or Digital Director and asks for a meeting, then that senior leader has probably heard of them, probably has already had some prior work done by them or that vendors kit in their DC. They are likely to say “yes – of course”…
When I phone or email they are likely to go “Who?” and then “No thanks – we already have a supplier we work with”… or tell me to talk to the recruitment agency they use for supply of resource.
What can be done?
To my mind, in order to level the playing field, public sector leaders need to do five things:
- Firstly, be willing to work with micro businesses, by which I mean ICT contractors, as small businesses, rather than bringing “contractors” in via an agency or large consultancy as inside IR35. This has the potential to boost the local economy and reduce cost to the public purse by removing the mark up applied by the agency or consultancy to those contractors.
- Secondly, to plan how they might be able to meet with small business owners to discuss their future requirements in much the same way they would work with a big ICT supplier or consultancy. As I’ve outlined earlier – it is extremely difficult as a small business owner to get a meeting with a public sector ICT or Digital leader in order to discuss potential work.
- Thirdly, to moving away from paying a day rate to paying for clearly defined outcomes and being willing to work with small businesses to define these. For a task to be defined as outside IR35 it must have clearly defined deliverables / outcomes. What the contractor will do must be defined. This often presents a challenge for managers as they are not 100% clear what that person will do as they either do not know or don’t have the expertise to define it. This can drive the manager to simply define the role as inside IR35 as then all that is required is a job description and the deliverables can be defined adhoc. However surely if additional resource is required, and budget approval has been given for the resource, then what the resource is going to do ought to be defined?
- Fourthly, to deliberately and intensionally prioritize work for local small businesses. Public sector bodies are permitted by the public sector procurement rules to deliberately offer work to local businesses prior to opening opportunities more broadly. They are also allowed to prioritize the awarding of contracts to local businesses. I’d like to see the public sector being more pro-active in doing this.
- Fifthly, when working with a small business and considering them to be Outside IR35, encourage behaviour that re-enforces their outside status. For example actively encourage substitution and give them opportunity to decline pieces of work.
A bit of a rant…
I know that some will read the above and view it as a bit of a rant. Some will read it and think – he’s just moaning because he’s got no work. When I started writing this both of these were true, it is a bit of a rant, and I didn’t have any work from April 2022 until I started my current contract in late August 2022.
Some will tell I’m factually wrong about some of what I’ve said. For this I apologize now.
But at the same time I believe the issues I raise are true. I think that the changes to IR35 are making it very difficult for small businesses in the ICT sector – ICT contractors – to win new work and are bad for the UK economy. At present, despite being in a contract, I am worried about what will happen when it finishes, and I am seriously considering abandoning AMDH Services Limited as a business and returning to permanent employment and this is because it’s so hard to win new business.
You might think this is because I have not tried hard enough to win new business but this just isn’t true. I have tried social media, direct marketing, telesales, etc. but in the end I’m fighting an uphill struggle. I’m trying to climb a set of steps where the steps are taller than I am and getting to the next step takes an impossibly large amount of work.
If you are reading this and you are a public sector ICT or Digital leader… ask yourself whether you could do business with a small ICT consultancy – a ICT contractor – via a framework such as the Bloom NEPRO framework. Would you be allowed? Would your procurement team allow you to start a conversation with a small business like mine or would you be pushed to go via an recruitment agency or an existing ICT supplier or consultancy? Would you be prepared to put in the work defining the opportunity and offering it to a small business prior to asking a bigger business to deliver it? My suspicion is that there are not many public sector ICT or Digital leaders that would be allowed to do this or have the inclination to do this – but tell me if I’m wrong.
This article was also published on LinkedIn.
