Contractor-Flight Hurts Projects and Programmes

The most remarkable period in the history of programme and project management is upon us. Many self-employed specialists who provide services to major banks and utilities, telcos and engineering firms are quitting and walking away from contracts. This is a remarkable number: 75% of consultants, contractors, and freelancers are leaving.
What is the cause? IR35 reform.
New IR35 reforms will be in effect in the private sector starting April 6. Medium and large companies will now have to ensure contractors who provide services through a limited company (or personal services organization (PSC), are paying the correct tax.
Previously, contractors had to decide whether they were ‘outside IR35 (ie they don’t pay corporation tax from profit) or if they were ‘inside IR35 and liable for the client’s employment taxes.
We are witnessing a worse-case scenario, with major companies such as Vodafone and HSBC banning PSCs entirely from the supply chain to avoid HMRC wrath.
Wide-ranging blanket ‘Inside IR35″ assessments are also becoming more common. It is because if you have hundreds of contractors or freelancers who are required to deliver certain pieces of work on a contract basis, it is very difficult to determine if each one is working within or outside IR35.
Some people find the task too daunting so they choose to place everyone in IR35 and minimize the risk of getting it wrong. Others insist on using what is called an umbrella, which is where a third party manages the contracts for many individuals on behalf of the company, removing all risk.
It seems that the legislation passed to ensure fair taxation is actually creating a tax blackhole as thousands refuse to vote ‘inside IR35.’
It is acceptable for a client to continue paying employee’s and employer’s tax liabilities (national insurable, apprenticeship levy) without any security of benefits (sick leave, holiday, right before a tribunal).
The majority would rather quit working for a while, not pay any tax, and tap into savings until they see the market make sense. Others are also looking for roles outside of IR35, but these opportunities are rapidly diminishing. Many are looking to move abroad to find countries that value their skills and treat them fairly.
However, there are a few that have been caught. They must find an outside IR35. They can also close the business they have worked so hard to build and accept a permanent job. This is also fraught. These skills are usually only required for a short-term, so there is little chance of them finding permanent work.
These factors have forced some to take the risky route of entering IR35 at their current client, even though it could signal to HMRC that they should not have worked that way and should pay a retrospective income tax bill. They have no choice with mortgages to pay (15% of them say their homes are at-risk) and food on the table.
It’s a terrible situation that no one could have foreseen, and the consequences of walking out are severe. The situation has been exposed by the media in recent days. There are many stories, from National Grid keeping the lights on to missing regulatory obligations at major investment banks like Deutsche Bank, that are being reported.
It could also lead to a productivity gap of approximately PS2.2bn in April, the first month of reform’s implementation. This is because the human capital necessary to deliver projects disappears without any mitigation to stop the flow or replace it with new talent.
This is far more than the estimated income HMRC will make of around PS1billion within the first year. The facts show that there is no mitigation. 85% of project managers state that their client has no plan for mitigating.

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