Manufacturing Sector at Risk of IR35 Contractor Talent Drain

Businesses in the manufacturing, utilities, oil and gas sectors are in danger of losing contractor talent as 41% consider a hasty blanket approach to IR35 assessments

Less than half (41%) of UK manufacturing, utilities, oil and gas firms admit to considering taking a blanket approach to managing the new IR35 legislation – because they don’t have the time to assess contractors individually, research by Brookson Legal has revealed. This is 18% lower than the 59% UK average and the lowest % amongst the industries surveyed.  59% of firms in these sectors confirmed that they wouldn’t want to wrongly assess any contractors for risk of losing them.

Ahead of new off-payroll working rules coming into force in the private sector in April 2020 and coinciding with HMRC’s consultation on the changes closing today (May 28^th), Brookson Legal has published its IR35: A Ticking Timebomb report. Based on independent research of more than 500 medium and large-sized UK businesses that hire contractors, it reveals how lessons have not been learnt from the IR35 roll out in the public sector.

59% of manufacturing, utilities, oil and gas businesses agreed that IR35 will have an impact on the number of contractors they hire – 14% less than the UK average of 73%. According to the manufacturing, utilities, oil and gas businesses surveyed, 35% compared to the UK average of 48% confirm that IR35 will encourage them to reduce the number of contractors they hire – resulting in thousands of contractors potentially losing out on work. 37% expect there will be fewer contractors available.

Joe Tully, Managing Director of Brookson Legal, said: “Whilst it is heartening that many manufacturing, utilities, oil and gas businesses wouldn’t consider taking a blanket approach to this legislation, the fact that 41% are actually considering doing this is shocking considering the well-publicised impact of this approach in the public sector.

“Manufacturing, utilities, oil and gas firms may see this blanket IR35 approach as a quick fix but it is anything but and should be avoided at all costs. Far from saving businesses time and money, this approach will lead to serious repercussions – leaving the sector wide open to increased cost, a wide-scale contractor talent drain, reputational damage, and, in some cases, accusations that they have broken the law.”

The Brookson Legal research also revealed:

• 65% (12% lower than the 77% UK average) of manufacturing, utilities, oil and gas businesses are concerned that all or some of their contractors previously not captured by IR35 will now be, and 16%, compared to the UK average of 9%, don’t know.
• 59% (18% higher than the UK average of 41%) of manufacturing, utilities, oil and gas firms wouldn’t consider taking a blanket approach as they don’t want to wrongly assess any contractors for fear of losing them – this is the highest across all sectors surveyed.
• According to 78% (60% UK average) of the manufacturing, utilities, oil and gas firms surveyed, the top main benefit to hiring contractors is flexibility on projects and support at peak times.
• 37% (47% UK average) of manufacturing, utilities, oil and gas businesses know their exposure to IR35 in terms of the proportion of contractors that will fall inside IR35 and have taken steps to understand their exposure/risk. In contrast, 43% are relying on a ‘gut feel’ (38% UK average).
• According to 35% (11% higher than the 24% UK average and the highest % of the all the sectors) of respondents, IR35 won’t make any difference as contractors are vital for their businesses and 6% (4% UK average) expect to be taking on more contractors in future regardless of IR35. 

When asked what their biggest fears are with regards to IR35, the top three biggest fears are:

1. Wrongly placing workers inside/outside the IR35 rules – 43%
2. Losing skilled contractors and freelancers; and increased costs – both 35% respectively
3. Projects being delayed due to contractors leaving; and engagement with contractors such as having to communicate changes to their employment status – both 33% respectively.

Only 8% of manufacturing, utilities, oil and gas businesses don’t have any big fears when it comes to IR35.

Joe Tully concludes: “78% of manufacturing, utilities, oil and gas businesses are already being asked questions about IR35 by their contractor workforce, and risk alienating and losing this workforce if they don’t have any answers. 59% of manufacturing, utilities, oil and gas businesses are not considering taking a blanket approach and it is these businesses that will have the competitive advantage by showing that they are taking their IR35 obligations seriously.

“The new IR35 off-payroll rules come into force in April 2020 but the time for UK businesses to put their IR35 house in order is now. By undertaking proper audits, and seeking expert advice, businesses will be able to illustrate that they are taking ‘reasonable care’ with their IR35 assessments and will almost certainly find that the impact of IR35 is not as far-reaching as their own gut feeling leads them to believe.”

To find out more about the IR35 research amongst UK businesses and to download a copy of the Brookson Legal IR35: A Ticking Timebomb report, visit https://www.brooksonlegal.co.uk/guidance/ir35-a-ticking-timebomb/