National call on staffing agencies to launch IR35 education exercise for the construction sector

According to a survey of more than 200 construction businesses, over a quarter (26%) report being unaware of the upcoming IR35 changes and their consequences. Recruitment agencies are now called to launch a major education IR35 campaign for the construction industry to create a smooth transition come April 2021, when the new legislation comes into effect.

The IR35 rules govern the tax status of an individual working as a contractor (or freelancer) and whether, for taxation purposes, they ought to be deemed an employee on the payroll. Businesses that fail to exercise reasonable care in determining the IR35 tax status of a contractor could face significant fines.

Four in 10 (44%) surveyed by Randstad Construction, Property & Engineering (CPE) are aware that they need to prepare for these changes imminently or are currently part way through this process. Only 30% report having a plan already in place, placing them in the best possible position.

Recruitment agencies could now be in the driving seat in what could be a national call for a major IR35 education drive. The education exercise would be to ensure the majority of construction businesses are prepared for significant changes to contractor tax legislation.

For those agencies with a large contract worker base, it is worth noting that about 98% of construction companies or projects hire contract workers, which means almost all clients on an agency’s books will be impacted in some way.

The pandemic has also created greater pressures around cashflow, with 43% of construction employers not knowing what the additional costs as a result of IR35 might amount to at this point.

The construction sector also accounts for 7 percent of the economy and supports the wider economy via demand for building materials and housing goods. Any delay to talent acquisition will have a knock-on effect on project schedules and the supply chain, which has already had a tough year due to pandemic-linked lockdowns across the globe.

• 70% of construction businesses surveyed in November still not fully prepared for IR35 rule changes from April 2021
• Worryingly, more than a quarter of those questioned (26%) had no awareness of the rule changes or their potential business impact
• 43% of businesses unsure of potential cost implications involved
• Just 24% report that they have understood the Government’s IR35 guidelines
• More than two thirds (70%) of medium and large UK construction businesses are still not fully prepared for upcoming changes to the IR35 legislation.

“Worryingly, despite having an extra 12 months to prepare, our latest findings reveal that the majority of construction businesses aren’t ready for changes to IR35,” said Owen Goodhead, Managing Director at Randstad Construction, Property and Engineering.

“Tax regime changes are likely to have fallen on the backburner given the upheaval generated by Covid-19, with survival mode kicking in for many,” said Goodhead.

He continued, “But these changes will have a deep impact on recruitment and HR processes and operations, with the need for in-depth stakeholder training and deployment of new management tools.”

According to the report, the pressures of the pandemic have impacted the ability of businesses to prepare, with this additional business pressure hampering IR35 preparations for 60% of respondents.

Goodhead said: “It is still possible to prepare for IR35, but businesses need to act urgently, to start impact assessments and seek high-quality advice.

“To put things into perspective, offers made to contractors now on the basis of a six-month contract will last beyond the 6th April 2021 and will therefore be in scope. This means the onus will be on the employer to determine the IR35 status of contractors and exercise reasonable care in doing so.”