The new IR35 legislation comes into effect in April 2020 and the new off-payroll working rules legislation ensures that contractors in the private sector now pay identical tax and National Insurance contributions as an equivalent employee would. In the digital sector, there is a demand for contractors to provide help and expertise in certain areas of businesses. Therefore, the digital sector needs to understand IR35 and the effects that it could have on future hiring processes. 

IR35 and recruitment in digital

IR35 isn’t completely new legislation and has been around for a number of years. In 2017 when it was introduced in its current form to the public sector, it made it harder to secure experienced talent, as contractors could make the switch to the private sector to avoid being inside IR35. This enabled contractors to work using their limited companies and avoid paying the tax that comes with being inside IR35.

Now, with fewer alternatives looming and HMRC looking to investigate any contractors that could be within the IR35 legislation, it is becoming a period of uncertainty for contractors. Some are accepting the IR35 rules and have decided to opt for continuing to work for companies in contracts that are inside IR35, and accepting the higher tax that PAYE incurs. On the other hand, some contractors are holding out in the hope of securing a role outside IR35, even when the changes take place.

No one is sure exactly how many roles will fall either inside or outside of the legislation when the changes come into effect on April 2020. Estimates vary quite widely, and we do not expect to see the legislation in its final form until December of this year. It is imaginable that a great deal will be determined inside IR35, which can be verified by the website. Use the employment status for tax (CEST) tool. 

The key contract roles to be affected 

No one group will be affected most by the IR35 changes. Some groups will not be affected at all, so long as the client falls under the definition of a small company or SME. Small companies won’t be affected by the changes unless they no longer fit the criteria. To find out more about the IR35 rules, read our article titled ‘IR35 rules: Status, responsibilities, and repercussions’.

Contract vs permanent placement in digital

In the digital sector, we are seeing a high amount of permanent staff being hired across the sector in the last 6-12 months. In 2018, 70% of all roles we saw within digital were permanent, with the rest being either fixed-term contracts or daily rates. Already in 2019, we are seeing an increase towards permanent roles, with 74% of all digital roles being recruited permanently.

Because contract roles are more likely to be within IR35 in the future, it makes sense for this trend to continue. That is because fewer people will see the benefit in contracting, as the take-home pay begins to match what would be on offer permanently. Those clients who continue to recruit temporarily might find it more difficult to secure competent talent, as the number of those actively wanting to contract decreases. 

Hiring contractors in the future

Despite the huge changes that are coming into effect on April 2020, it is important to continue to produce the same amount of work and increase your output and productivity as the years go on. Therefore, IR35 cannot stop you from continuing to develop your teams and push your business to the next level. Despite the changes, the need for short-term support will persist. Packages will have to be sufficiently attractive as to offset the risk of contracting, and processes will need to be smooth and quick to beat permanent roles securing the top candidates.

If you want to talk to someone about hiring top digital candidates to your organisation, on both a temporary and permanent basis, get in touch with one of our specialist recruitment consultants today for a confidential discussion. Alternatively, if you are interested in pursuing new career opportunities, use our Job Match tool that can help you to match your skills and experience with the best-suited roles available in the market.

Ben Cook
Senior Consultant, Not for Profit & Public Sector, Michael Page Digital