IR35 and the Implosion of the Contracting Market

When I checked Twitter this morning my heart sank – I was watching the new Chancellor (Rishi Sunak) regurgitate the HMRC view of IR35 and the changes to be rolled out into the private sector in April.

He was essentially announcing the Death Knell of Flexible Working as we know it – the contract market will shortly implode even further than it already has.

We, the contracting community had hoped that the fresh faced minister would pause the roll-out and call for the review that was promised ahead of Decembers election.

Instead he stated “it’s not fair to all the people who is employed that someone else who is doing the same job is paying less tax” – the cornerstone of the HMRC argument for making the changes.

On the face of it that may be a reasonable stance to take – but they are not comparing apples with apples here (and they damn well know it).

While we make be doing the same job we are engaged on a very different basis.

We have structured ourselves to operate as service companies to offer clients a flexible resource as and when they need it for as long as they need it (and no longer).

Notwithstanding the fact that contractors are not entitled to sick pay, holiday pay, pension contributions and other benefits such as professional development (training), gym membership and health insurance. Sure, not all of these are covered by the tax & National Insurance they pay but the overall package makes them an employee.

Add to that the notice period that they benefit from, normally a month but can be more, and the fact that even if there is no real work for them to do their employer is still obliged to pay them for turning up. Even if they ‘let them go’ they would have to pay them for their notice period (and any untaken holiday pay!)

Contractors normally have very short notice periods, if they have one at all, and their contract can be terminated at anytime for just about any reason – there is no guarantee of work (and no expectation of it – that’s the life of a contractor).

So, what’s changed?

IR35 itself – the legislation (as complex and unfit for purpose as it may be) – will not change. Determinations on employment status will still need to be made with reference to this legislation.

What’s changed is who makes that determination after April 6th 2020.

Since it’s introduction around twenty years ago, it was the contractors responsibility to determine their employment status. If that determination indicated that the role was Inside IR35 then they would be liable for the payment of tax as if they were an employee. If it was Outside IR35 then this did not apply.

With the benefits of being Outside IR35 pretty clear cut – most contractors preferred that arrangement.

The problem is that some contractors were not as diligent (or just blatantly avoiding paying the additional tax) and declared themselves as being Outside IR35 when the contract and/or working conditions didn’t support that determination.

HMRC claims that as many as 9 out of 10 contractors are operating in this manner – but have not be able to substantiate this claim. The generally accepted figure is less than 30% of contractors are declaring themselves as being Outside when their working conditions are such that they should really be Inside.

So, in April 2020 HMRC will require the end-client to make the employment status determination instead of the contractor.

What could go wrong? If the end-client is using the same, unchanged, legislation as the contractors have been for years then surely this will put things right …. won’t it?

Well, along with the responsibility for making the determination comes the responsibility for getting it wrong. By wrong I mean making an ‘Outside’ determination which HMRC later decide should be ‘Inside’ (they won’t be interested in the other scenario).

Should an end-client incorrectly determine a role to be ‘Outside’ then they will be responsible for paying the tax that HMRC deems to be owed – which could be thousands of pounds here.

That’s the kicker here..! Companies are generally risk averse and locking horns with the taxman is something they would quite rightly want to avoid.

Companies have looked at their contractors and thought – “if we get it wrong and have to pay back-tax for them then is that a risk that we can sustain?”

The answer in most cases is, understandably, No!

Despite claims (lies?) by Finance Minister Jesse Norman in the House of Commons that it’s not happening, many companies are making blanket determinations that mean either:

  • They will not use contractors in anyway shape or form after the changes come into force
  • All roles will be deemed as Inside IR35 regardless of the outcome of a proper determination.

Many contractors are being walked out of the door by shortsighted clients fearful of HMRC while others are being told that they can stay only if they move to being ‘Inside’ (taking the tax hit in the process – for no perceivable benefit).

What are the implications?

This clearly shows a misunderstanding of the legislation and flies in the face of requirement for due diligence on a case by case basis that was assured (and even required by HMRC).

But just think about it for a minute – what are the implications of moving from being ‘Outside’ to ‘Inside’ with the same client? What is that actually saying?

Surely that indicates that, assuming the role hasn’t actually changed, the contractor accepts that they had previously been working on the wrong side of the legislation and is therefore liable for the tax they will now be deemed to have avoided as a result. Who in their right mind would sign up for that?

HMRC have apparently said that they will not investigate the retrospective status of contractors making this move from Outside to Inside – but after everything that’s gone on in the past few months, why would we trust them? Are they really saying that they would ignore cases of potential tax fraud?

Now, not all companies are making this blanket determinations – some are actually doing it properly and you can use the OffPayroll.org.uk website to see who is doing it right and who is not.

How’s the future looking?

If I’m being honest, as it stands right now, I’m not that hopeful. The House of Lords is conducting a review of the impact of the changes but I’m not sure what they will conclude. Even if they agree that the changes are excessively damaging I’m not sure whether they can actually call a halt to the roll-out or just make a recommendation.

It is clear that the government (small ‘g’ is intentional!) is going to plough ahead with the change – regardless of the evidence that it may mean that a significant number of contractors will be forced out of their current engagements and maybe have to close their businesses down. No doubt they will claim that these people were operating contrary to the legislation and that the changes have been successful in their aim.

Fortunately I’m currently engaged with a small start-up company which will be exempt from the proposed changes – so the employment determination remains with me.

I’ve had the contract independently reviewed and it has come back as being Outside IR35. The client is aware of IR35 and are happy for me to operate in a manner that will demonstrate that I am indeed Outside.

In a couple of months I will draw up a Working Conditions Declaration for the client to review and sign. This will help support the ‘implied contract’ concentrating on how the services are being provided and how they differ from employment.

The contract should run for another five months (but may finish earlier – I’m a genuine contractor remember) and when it concludes there is no obligation for the client to offer another (or for me to accept it).

So my hope is that, in the four months between the changes coming into place and the contract ending, clients will see that blanket determination and bans are not working for them and that the contract market is in recovery.

Failing that I will have to hope that I can secure a contract with another ‘small company’ where I will be responsible for my employment status determination or that a larger client is engaging with contractors and operating in a fair with regards IR35.

If these things do not come to pass then I will, with a heavy heart, have to close my business and look for a permanent position instead. My income will be lower and my flexibility will be gone but I will have employee benefits and paying the tax to ‘earn’ them.

Taken as a whole the taxes that HMRC will receive from me, i.e. personal and corporation, will be reduced as a result. With the stated intention of these changes being the increase of revenue this kind of flies in the face of what will actually happen.

There is still time for the government to delay the roll-out (maybe based on the outcome from the Lords, maybe common sense will prevail) – but all we, the Flexible Workforce, can do is watch and wait as nobody is listening to us.

On The Fence Development – What’s All That About Then?

I’ve been contracting for over seven years now and during that time I’ve had  a number of clients, friends fellow contractors ask me “…why ‘On The Fence‘? What’s that all about??”.

Ignoring the fact that the blog I initially hosted on this domain was about my experiences with Linux and Open Source while working day to day as a .NET Developer using Windows, I think that the name fits – it’s all about not putting all your eggs in one basket as it were.

I think that there is quite a wide line between trying to be a ‘Jack of All Trades’ and a ‘One Trick Pony’ and as a Contractor I think that this is a good place to be.

Some will disagree, Jon Sonmez of Simple Programmer certainly advocates specialising and he’s retired in his 30’s so maybe I’m the one who’s wrong here. But while I can see the merits in this approach and it worked out well for Jon, I don’t think that being ‘the expert in the Xamarin.Forms Grid control‘ is going to get me that far (that’s not to say that the Grid control is a trivial thing of course).

I also don’t think that trying to be a Guru in Desktop, Web and Mobile development  is viable either. We all know that this would be virtually impossible to achieve with the technology shifting under us all the time.

I do however think that to be a viable option as a contractor you need a good foundation knowledge, spread of skills across various technologies and a desire to learn as you go (let’s face it – nobody can know it all).

So that’s what I aim for.

I have experience with Desktop development using WinForms, WPF and am starting to look at UWP.

On the Web development front I am currently working with a client who has an ASP.NET WebForms application and another using MVC while a freelance project has me ramping up on ASP.NET MVC Core development on a Linux host.

With Mobile development I am all Xamarin, whether it’s the native flavours for Android and iOS or Xamarin.Forms. Hooking these up to Azure (or ASP.NET WebAPI Core) backend is also within my skillset.

I’m always looking to keep my skills up to date, while able to support existing deployments using older technologies – and even migrate them forwards should that be the desire.

So, what will 2018 be the year of?

They say that life is what you make it so time to make some resolutions …… yes?

Well, if John Sonmez from Simple Programmer is to be believed – maybe not!

I receive regular email updates from the Simple Programmer website and the one I received on 27th December caused me to stop and think.

Probably based on one of John’s blogs posts from 2016, the subject of the email was ‘Dont make resolutions the New Year, make a commitment’. Now I initially thought that these amounted to the same thing but changed my mind after reading the parting shot of the email which read:

Let me put it this way, when you need to take a taxi to the airport, do you want your taxi driver to resolve to be there at 8:30 AM or do you want him to commit to being there at that time?

The answer is obvious (hopefully) so I’ve decided to make some commitments for 2018:

  • I will watch at least one Pluralsight course a month
    • My technology focus will be .NET Core, Azure, ReactJs
  • I will watch at least one Xamarin University session (attending those required to maintain my certification)
  • I will blog twice a month (not including the Online Tool of the Month posts)
    • To keep me honest I will probably post findings from my Pluralsight courses and Xamarin investigations (proving that I’ve actually honoured the above commitments)
    • Other topics will include Privacy and Encryption which seem to be bad words these days

So that’s what I will commit to this year – maybe I’ll be in a position to commit to more but I’ll review my progress mid-2018 and see how I’m doing.

Book Review (of sorts): The Complete Software Developer’s Career Guide – John Sonmez

I’ve been following John Sonmez via his Simple Programmer site for a few years now and have found his approach to be very refreshing. He doesn’t go down the ‘warm and fuzzy – it will all be fine’ road, oh no!

John has a no BS approach which leaves you in no doubt that if you want to succeed in your career as a Software Developer (or anything come to think of it) then it will take hard work and dedication on your part – it won’t just happen.

Now, we all read technical books (or blogs) on a pretty regular basis in an effort to keep up with the ever changing world of technology, but what about those softer skills? Would you really buy a general ‘self help’ book? I mean, Software Developers are special right!?

I have previously read John’s first book, Soft Skills, which I found very enlightening, so when I received an email from John asking if I wanted to read a preview of his new book, The Complete Software Developer’s Career Guide, I hit the reply button straight away. [John contacted a number of his subscribers with the same request – I’m not special in that regard 😉 ].

The Book

Now this is a big book – some 800+ pages – so it was going to take a while to read. However, this all coincided with my planned two week holiday so being able to lay in the sun and just read a book for a few days was not going to be a problem.

The book is aimed at Developers at any point in their career – even if they haven’t actually started yet. I’ve been developing for over 15 years at the time of writing this but I resisted the urge to skip the early sections thinking they would be irrelevant and found some of the advise in them very informative.

In our industry it is very difficult to keep up with the tidal wave of technology; what should you learn and what should you ignore. Entering the realm of Software Development must be extremely daunting these days and John helps to distil it down to what you need to know when starting out. Remembering that it is not all about writing code – far from it.

Once you have an idea about what you need to know – how on earth do you learn all this stuff? Well, John has you covered again with his technique for learning things quickly. Obviously you won’t be a guru on the subject but John’s technique is all about identifying what you need to know to be productive and knowing when you have gained that knowledge.

The book covers areas including Source Control, Continuous Integration and Debugging – but not at a technical level. There is no explanation of why you would ‘rebase’ a git branch or how to configure Jenkins. Instead John highlights the needs for expertise in these areas.

For me Sections 4 & 5, Working as a Developer & Advancing your Career, were the most interesting. Being able to code like a ninja is great, but if you can’t function in the workplace then you are not going to realise your full potential as a Software Developer. Soft Skills are important in all walks of life but in careers like ours, i.e. heavily technical, I think that they are vital.

From how to deal with your boss and co-workers, communicating your ideas and how you should dress (regardless of whether others are wearing t-shirts and flip-flops) there’s a chapter for that. There are also chapters to make sure you come out of your annual review walking tall instead of looking at the ground, on negotiating a pay rise and dealing with prejudice and discrimination.

My Final Thoughts

As I’ve already mentioned, I’ve been following John for a while now and have already read the Soft Skills book so I know his style. With that in mind there was a lot of content in the book that I’ve either read before (on his blog or his previous Book) or watched on his YouTube channel.

So, I think that the book is a waste of time – yes?

Not at all. There was so much content in this book that I think every developer should have a copy (and John is not paying me to say that).

Throughout the book there were times when I found myself thinking “am I doing that and if not why not”. Other times I found it reinforcing what I already do in my professional life – from the way I dress at work to the way I interact within a team. This was valuable insight and empowering to me – knowing that I was not just being eccentric.