How IR35 legislation could affect the operational ability of your digital product teams
Craig Pugsley, one the co-founders at Stage One recently spoke to a talented designer who helped establish one of the South West’s leading design agencies has written wildly successful and highly regarded design books that quickly became required reading and is a regular on the speaking circuit – routinely drawing packed rooms of eager padwans excited to hear her teachings first hand. The profession has been blessed that she’s moved into a consultant role: able to share her knowledge and talents by swooping in like a one-person A-Team and getting the job done. Money well spent, by any client.
However, she’s recently told Craig of a story where she was halfway through her contracted project when the company she was working for declared all temporary staff as inside IR35, potentially having a huge impact on this contracted professional’s ability to deliver the work she was brought in specially to do.
For those who haven’t encountered IR35 before – these four very special alphanumerics have superpowers. If our network of contractors and chatter on LinkedIn is anything to go by, they seem to have single-handedly disrupted huge swathes of the tech industry – swiss-cheesing product teams of some of their most expert and relied-upon resources.
In an effort to recoup some of the perceived loss of tax income, HMRC has decided that from April 6th, previous legislation that applied only to the public sector will now come into force for private sector contracts. This IR35 legislation attempts to discourage ‘disguised employees’ – contractors who appear to be permanent staff. Permanent staff who would be paying national insurance, PAYE and income tax – rather than contractors working through their own Limited companies who are only paying corporation tax, tax on Director salaries, income tax on dividend payments, health insurance, life insurance, redundancy insurance, business insurance, etc… (all taxed). Typically, ‘disguised employees’ would-be contractors who look like they should be employees of the company: they’re given a laptop, lanyards, use the company gym facilities, have to work 9-5 five days a week from the company office, have no fixed statement of work, get told what to do at short notice, etc… not temporary skilled individuals brought in with a specific purpose and duration in mind that only their skillset could perform.
Rather than assessing each contractor’s individual contract to determine whether it looks like a ‘disguised employee’ and take the risk of getting it wrong (and therefore being liable for hefty payments if HMRC determine differently), many large organisations have decided against the potential exposure and have ruled all contracting staff ‘inside IR35’. This effectively means those employees are no longer ‘disguised’ – in fact, being ‘inside IR35’ explicitly means the contractor is a (temporary) employee of the company. This has a big impact on the contractor: being ruled an inside IR35 employee means they are now liable for similar tax to a perm employee, in addition to their other tax liabilities. Many organisations aren’t set up to make these deductions from temporary staff, so contractors are forced to work through umbrella companies – an artificial company that will take you onto their payroll and administer your deductions (for a fee).
The actual impact of these changes is yet to be fully felt. As we write this (in early Feb 2020) it feels like standing on a beach staring up at a tsunami. We’re not quite sure if the wave is going to dissipate before it reaches us, or whether we’re all going to be swept off the beach. Many contractors who have been deemed ‘inside’ have either left already or will be working out the remainder of their contract until the legislation hits in April and then leaving. Huge swathes of highly-skilled staff will be departing very specialist highly-tuned super-productive Agile product teams, infrastructure support staff, delivery managers, etc… teams could struggle to remain operational day-to-day on-the-ground. As productivity inevitable slips and quality nose-dives, organisations could panic-recruit unsuitable staff in an attempt to backfill haemorrhaging standards. This could be a cancerous plague that could eat organisations from the inside out, only to be noticed when it’s too late.
Some organisations are trying to nip this in the bud by off-shoring – taking the seaming easy (and seeming cheaper) route by looking to fulfil these highly-skilled roles outside the country. Not only does this erode British competitiveness and encourage money earned in Britain to be spent outside Britain, but it can also have a significant impact on the quality of delivery.
We’re trying to help organisations remain operational and get their design work done. We help construct comprehensive statements of work, set realistic timescales for projects and meet budgets that are surprisingly affordable. By engaging us in project work to fulfil design needs, organisations are no longer be in the scope of IR35 legislation and can rest assured. We carry any liability that may be deemed but are small enough not to be in the scope of the new rules. And by employing a cross-section of talent at Stage One, we are able to dynamically change the designers we bring to organisations’ projects, ensuring they always have the right person on the job at the right time.
We can do this due to the way we’ve set ourselves up. As a boutique agency specialising in the full range of design skills, from discovery research to help gather crucial insight into user behaviour, brand and style guide creation, design strategy, comprehensive design systems and much more, we can offer an equivalent to the kinds of design services you may have been receiving directly through contractors. Our team has decades of experience working across teams of all sizes, in various business domains, B2B, B2C, eCommerce, emerging technology, voice apps, government and other public sector work.
Looking to get ahead of the curve ourselves, we’ve even created a series of innovative design ‘products’ that can be purchased directly from our website if your needs are more conventional. Pre-packed, pre-defined statements of work for fixed prices with fixed timescales. We’re particularly proud of our four-day ‘Idea Accelerator Sprints’ – a condensed version of the traditional Google Ventures week-long design sprint that has us co-designing your next big product idea through rapid product scoping, feature solutionising, prototyping and user validation research with real users.
These changes need not impact your operational ability and have a detrimental impact on your product’s quality. But you must act now, and get ahead of the impending changes.
Book in a meeting today with Stage One to discuss engaging us for your next project.