Financial firms must capitalise on the delay to IR35 reforms

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Recent circumstances have seen the government postpone its planned IR35 reforms for a year. For many underprepared businesses, this may come as a blessing in disguise. At the end of 2019, 71% of respondents to a Sullivan & Stanley study of 500 organisations said they were unaware that the IR35 changes were coming into effect.

Banging square pegs into round holes achieves two equally counter-productive things: it destroys the peg, and demolishes the hole. This is the mess that could be left for the majority of financial services companies in the wake of the upcoming IR35 reforms. These reforms could leave financial firms scrambling for indispensable expertise—but you can avoid that

The simplest way to explain the potential damage caused by IR35 reforms is that it will make it harder for businesses to secure the right expertise (or ‘the pegs’) for the right projects (the ‘holes’). The implementation of tax rules relating to off-payroll working for clients and contractors has already had a ripple effect across the financial industry, but the 2021 reforms could be a tipping point.

The commercial and administrative burdens on employers hiring certain types of contractors will shoot up, with new obligations forcing businesses to review their contractors, examine who fits in where, and try to prevent their best off-payroll workers from seeking better arrangements elsewhere. If firms aren’t prepared, they’ll soon have to start cramming round pegs into square holes – the pegs being junior, under experienced professionals, and the holes being high-stakes roles like compliance specialist. Even worse: they’ll run out of pegs altogether. 

With the 2020 reforms now just around the corner, businesses are finally waking up to smell the coffee. Respondents to the Duff & Phelps Global Regulatory Outlook 2020 report identified “the war for talent” as the top business risk of 2020, and this will only be exacerbated by a post-pandemic race for talent.

The real question now is, when faced with the brain-drain ‘double whammy’ of IR35 and Brexit, how will financial institutions retain their invaluable expertise when specialist contractors are walking out the door? 

Subject matter expertise in short supply

Many financial firms have consistently found success in bringing in flexible contractors with specialist skills for certain projects. But the new round of IR35 reforms are set to dry up the supply of such accessible subject matter expertise. Information Age found that 67% of HR professionals predict it will be harder to recruit the necessary skills for their organisation, while 59% of freelancers in a Brookson Legal survey said they will consider jumping ship if considered for IR35. Financial services firms should take it as warning that HMRC suffered a brain drain when IR35 was implemented in the public sector. Some government departments lost up to 40% of their IT contractors according to Computer Weekly.

Project delays and escalating costs will be the result of the ensuing forced replacements. Managers won’t need telling that the average cost per hire is almost $4000 as estimated by Deloitte – not to mention the onboarding administration work required. Then there’s the untold cost of losing knowledge specific to your business: the intangible, nuanced stuff; the ‘special sauce’. How to replace an experienced fraud officer who knows the ins and outs of your company’s fraud profile, or a compliance officer who can distinguish all of the grey shades of your risk appetite?

Unless financial institutions find a way to capture and productise the expertise held within the minds of these specialists, their UK businesses will be especially vulnerable when those specialists are squeezed out by newly stringent tax rules.

2020 plans in need of shake up

This is why businesses need to take a red pen and incorporate intelligent automation into their 2020 calendars – and by ‘incorporate’, we mean ‘replace the part about trying to secure specialist expertise’, which is currently scheduled indefinitely for April onwards.

Nuanced know-how needn’t be siloed in one place, or under one hat: with valuable expertise made consistently accessible across the business, project managers and heads of departments have less reason to flounder in search of the right people for the right jobs. Round pegs, round holes.

Download our full eBook below: we outline the regulatory risks of 2020, and explore how financial institutions can avoid the impact of a forecast talent exodus. 

Download the eBook: Overcoming financial regulatory bloat
Learn how to keep financial expertise in your organisation (even if the experts are leaving), so you can automate and scale compliance operations.

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