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Concerned about the impact of IR35 on your IT service? See how a Managed Service Provider can help

Tuesday 19 November 2019 Application Managed Services


James Maw's picture
By James Maw

With IR35 tax regulations being tightened in April 2020, the way you can use and remunerate IT contractors is about to undergo significant change. And regardless of how satisfied your contractors are with their current arrangements, the responsibility lands on you as the hirer to ensure the right tax and NI are being paid.

There are several potential approaches, each with its own advantages and drawbacks. But first we need to understand why the changes are happening in the first place.


Why has IR35 changed?

IR35 is changing and as the rules tighten on contracted working, internal hirers like IT managers will find it more difficult to get the resources they need, exactly when they need them.

We have identified five ways you can change your relationship with IT contractors to comply with the new rules.


1. Offer employment to your current contractors

Starting with the most obvious option, you can offer to employ some or all of your current contractors on permanent or temporary contracts. This method ensures that you retain critical skills in your organisation.

There are significant downsides though. From your point of view, it will substantially increase your headcount – increasing fixed operating costs in the process. What’s more, this method limits the flexibility you otherwise enjoy with existing contractors. On top of this, you may not get sign off to increase your headcount due to Human Resource restrictions.

It will also require careful negotiations as salaries will naturally need to be lower than you’d otherwise pay a contractor, potentially making it an unappealing proposition for many people.

Couple this with the time it will take you to take care of any administrative tasks to complete things like Background Checks, Right to Work and Employment Agreements and it could take up a considerable amount of your valuable time which you would otherwise want to spend on business-critical projects.

2. Recruit new employees

If the salary negotiations with existing contractors prove too difficult, you could look to take on fresh employees to replace those gaps left in your IT workforce. 

While salaries could potentially be lower, the time you’ll likely spend on-boarding new employees and upskilling them to your ways of working may well override these savings – and potentially cost you more.

And again, this method is relatively inflexible, and increases your headcount at a time when you were probably using contractors to keep operating costs low, while retaining key skills in your organisation.


3. Using a Recruitment Provider (RPO)

Using a Recruitment Provider is another viable option, but make sure they are taking on the payroll obligations for your contractors.

By using a third-party to employ and pay your contractors, you can offload some of the responsibility that you’d otherwise have if you employed them directly.

This may not be attractive to contractors however. They may be more interested in working for a Managed Service Provider specialising in technology services and consider that a more exciting alternative for training in new skills and career opportunities.

It’s also important that an RPO can demonstrate to you that they have the ability to retain contractors who have the key skills and knowledge your business needs and that they can provide access to a much wider knowledge pool.

4. Reduce the scope of your IT service

This seems like an extreme option, but given the pace of change needed to hit the April 2020 deadline, it seems likely that some organisations will – at least temporarily – need to make do with a smaller IT service.

For companies where headcount is frozen, scaling back on work could seem like an attractive alternative. However, organisations will need to be careful that support for mission-critical IT systems can be maintained and that key projects are not unduly delayed. There is also the risk that budgets will remain at their new, lower level – limiting IT’s capacity to work strategically in the long term.


5. Choose a Managed Service Provider to manage your contractors

A managed service provider (MSP) is like a one-stop-shop for outsourcing the responsibility of dealing with contractors.

By paying a monthly fee – rather than incurring unpredictable time and materials costs – you can offload your IR35 obligations and keep the IT skills that are critical to providing quality support to your business stakeholders and delivering innovative new solutions which help your business to be both efficient and competitive.

And with access to a professional managed services team, you also have a partner who understands your resourcing and projects needs, so you can easily gain access to other technical skills on a flexible, ad-hoc.

Introducing a new MSP may well be the most efficient and cost-effective route for you.

IR35 may put your projects and delivery at risk – So make sure you’re covered

If you regularly use contractors – especially if you have trusted individuals that you rely on – you may be at risk from the changing IR35 regulations.

It’s your responsibility to decide whether contracts fall inside or outside IR35, so it makes complete sense to use an MSP to help mitigate the risks, while also ensuring you have access to reliable IT services. 

But the most important thing to remember is to look at the bigger picture – not on a contract-by-contract basis – and agree a unified, compliant approach.

If you’d like to learn more about what an MSP can do for you, read our refreshingly honest e-book: NOT just another guide to choosing the best managed service provider.

Or, if you’d like a chat about whether your IT arrangements will be affected by IR35, get in touch with one of our experts today, and learn how CACI have been helping major brands such as Argos, BMW, Waitrose for over 20 years, giving them the skills they need on demand and at exactly the right time.


Are you prepared to alter the way you use IT contractors? Discover five ways you could manage IR35’s impact on your organisation.

Concerned about the impact of IR35 on your IT service? See how a Managed Service Provider can help


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