With the UK oil and gas market reeling from COVID-19, it’s clear that the decisions made by businesses in this industry as they focus on a recovery in the coming months need to be strategic, measured and informed.
This extends to the choices companies with an interest in oil and gas make about their workforce, particularly the contract workers they rely on.
There’s no doubt that in challenging times, the unrivalled flexibility and specialist skills offered by contractors are utilised more than ever. As the economy enters uncharted territory, having experienced record rates of contraction in recent months, it’s clear that independent professionals have a big part to play in helping one of the UK’s most important sectors back to its feet.
This makes the case even stronger for a sensible, pragmatic approach to next year’s off-payroll tax changes. Controversial reform to the widely misunderstood and misapplied IR35 legislation arrives in the private sector on 6th April 2021, at which point medium and large businesses will become responsible for deciding the tax status of contract workers, with the party in charge of paying the worker to be held liable for incorrect IR35 status decisions.
Rapidly approaching IR35 reform means that businesses engaging contractors or agencies that place them must prepare, at a time when their focus has understandably been elsewhere.
The initial response to the incoming IR35 changes from businesses working in the oil and gas industry has been mixed, to say the least. Refreshingly, some companies realise the value of engaging contract workers, have prepared for the changes early and are set to continue working with legitimate contractors outside the confines of the IR35 legislation – which effectively is in place to prevent contractors working as disguised employees.
These businesses will benefit from the flexibility, skills and savings experienced when working with true contractors – three vitally important advantages offered in what is a precarious economic situation.
In fact, there are perhaps more businesses doing things this way than you might realise, reflected in the 2,200 plus firms across a number of sectors that Qdos is supporting.
However, as I’m sure you’re aware, not all companies have taken this approach, not yet anyway. Plenty have upheld their decision to stop engaging contract workers altogether or continue to insist that independent professionals work inside IR35 or via umbrella companies.
But in many cases, this is a move made before any actual IR35 assessments have taken place – which is short-sighted in my opinion, given that in our experience, the vast majority (at last count 87%) of contractors Qdos has assessed in recent months belong outside IR35.
While I won’t name names, because some oil and gas companies are in the process of reversing contractor bans – perhaps due to the 12 month delay to the changes or maybe because they realise just how important contractors are – you don’t need to look far to find out which businesses have adopted this risk averse strategy.
To say that banning contractors in response to the reform could stand in the way of these firms’ recovery and in turn the sector’s, isn’t an overstatement.
There is a myth still held that IR35 reform will spell the end of contracting altogether – and that IR35 reform is unmanageable. This simply isn’t the case. True, it’s short-sighted and unnecessary, and poses a big risk to contractors, (and also businesses if they refuse to engage these workers) but firms will be able to safely engage contract workers outside IR35 in years to come.
In order to do so, however, preparations must start now, because the fact of the matter is that IR35 reform is definitely arriving next April.
Companies must therefore develop a plan for safely engaging genuine contractors outside IR35 – something which is likely to put them in a strong position to manage the challenges created by COVID-19 head on.
While preparing for and successfully implementing changes to the off-payroll working rules requires careful planning, there are a number of key points that businesses should prioritise. These include:
– Consider your processes. Review your current processes before mapping out a clear strategy to manage the changes, with plotted deliverables and timeframes.
– Avoid blanket assessments and contractor bans. Conduct case-by-case IR35 status reviews so contractors aren’t subject to non-compliant blanket IR35 assessments.
– Do not rely on HMRC’s Check Employment Status for Tax tool (CEST). It has been overruled in court more than once and CEST isn’t mandatory. Independent IR35 status reviews are allowed and offer a thorough, objective and more accurate assessment of IR35 status.
– Collaborate with all parties. Joined-up thinking and collaboration between all parties in the supply chain (including contractors) will help ensure IR35 compliance.
– Manage the risks. Protect outside IR35 determinations with an IR35 insurance policy.
In the coming months, and as the oil and gas industry focuses on attempting to repair the damage caused by COVID-19, the businesses operating in this vital sector – that need contract workers to maintain a lean, skilled and agile workforce – must take a sensible approach to IR35 reform.
Failure to do so may well impede their own and this vitally important industry’s economic recovery.