• Samuel Slade

IR35 from a different perspective

I want to talk about a distinction between 2 types of contractor that I believe IR35 helps to identify: temporary employees and consultants. But before I begin, I want to preface this by saying that I do not intend to comment on whether the IR35 legislation or implications are the correct way to approach what I am going to talk about. I have seen a huge uproar in the industry and community over the proposed changes, and there are already a lot of opinions on the matter. It is also worth noting that, while the IR35 legislation covers many different professions and industries, I am only focusing on the industry and profession with which I am most familiar: software development.


So with that aside and using the terms of the legislation, I would attribute a temporary employee as being inside IR35, while a consultant would be outside. Allow me to explain a little further...


Temporary Employee

A temporary employee is someone who is brought into a company to fulfill the role of a permanent employee, but on a temporary basis. Seems simple enough. To reference the contractor market, I see this as being contractors who are brought in under any of the following circumstances:


  • To fill a role within a team where a permanent employee has either left without replacement, or there is a need to grow the team but a permanent employee has not been recruited yet. In this case, a temporary employee can allow the company to continue with their plans while still looking for a permanent member of staff to be recruited.

  • To handle an increase in business as usual work. This may be due to a surge in work, or a desire to reuse the skills of the existing permanent members on newer work, so a temporary employee may be used to pick up the day to day work in the meantime, such as maintenance, small improvements or features, tidy up of work, etc.

  • To help develop a new product or features. Permanent employees tend to be required to fulfill roles elsewhere due to their existing domain and product knowledge. This means they often don't have the capacity to pick up new work. As such, a temporary employee (or team of) may be brought in with the same or similar skills to the permanent staff with the sole purpose of developing the new product before handing support of that work to the permanent employees.


This is by no means an exhaustive list, but I feel it covers the most common scenarios I see.


In all cases, a temporary employee fills the same role as a permanent employee, which is why I feel this is relatable to the concept of being inside the IR35 legislation. Whether companies or employees should be taxed in the proposed way, I cannot comment. But I personally don't see any issue with this type of business model. There is a clear benefit to both company and employee here, all based around the temporary nature of the engagement. Some may argue that the same can be achieved through permanent employment, but I have found first hand that employers are less likely to hire you if you have a track record of moving jobs regularly (i.e. staying at the same place for less than 18 months). I have also spoken with many others who have experienced this same situation, and that has been one of the reasons many of them have turned to the contract market. From the view of the employee, this temporary nature allows them to have more control over when they work and what work they do. They can choose to move onto different projects when they want, or take time out for personal or professional reasons.


Consultants

The other side of the same coin is a consultant. These are individuals with extensive experience and skills; either covering a wide area or specialising in one or more particular areas. Consultants may serve more than 1 client at a time, often aim to support a client for a longer period of time, and generally help to improve the overall capabilities of a company. From my experience, contractors can be considered consultants under the following scenarios:


  • They have been brought in to help fill a gap in knowledge in one or more areas.

  • They bring expertise not present within the existing staff that can be used to improve existing, or build out completely new products or processes.

  • They don't work fixed hours or days. Instead they focus on the value they deliver to the client and always strive to improve the skills, knowledge, products or processes within the client company.

  • They are not directed by the client on how to complete day to day tasks. They have the capability to be fully autonomous while still delivering what the client wants.

  • Since they operate as a business, they can both send in a replacement consultant (provided the substitute has the necessary skills) or provide more than one consultant to fulfill the needs of the client. This may also take on the form of recruiting a team or employing the services of an outsource company to complete the project.


It is for reasons like these that I believe those contractors who can be considered consultants fall completely outside of IR35. Personally, I have always aimed at operating as a consultant and running my business in this way. I focus on delivering value to my clients and follow the Boy Scout Principal in that I always aim to leave a client in a better position than they were in when I commenced my engagement with them.


Whichever flavour of contractor someone falls into, I believe both have merit and serve their purpose within the industry. I feel IR35 goes some way to highlight the distinction, but perhaps focuses on the wrong approach or outcome. In some cases, those who choose to work inside IR35 may feel they are being punished.


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