Is Covid-19 (Coronavirus) a catalyst for change?

We find ourselves in unprecedented times.  Change is not just necessary but inevitable.  Covid-19 as a global pandemic is gathering momentum with its peak not predicted for a few more months yet.  Schools are now closed until further notice and mass lock down looks likely. The ramifications are going to be huge.

Business Impact

The impact on all businesses is inescapable.  No one is immune from the health, family, social, business and economic impact the pandemic is and will have. The vulnerable and elderly are to be protected, business are sort of being helped, exams have been cancelled with a huge impact on the people due to sit them and move on to the next stage in their lives, although with food and medical and the supply chains needing to remain operational some will escape the worst of it.    

Economic impact

It is too early to predict what the fallout from this will be but early predictions are for a global recession, the likes of which could be far deeper and uglier than the last financial crisis.  Stock markets have tanked, exchange rates are down, values of companies have been slashed and pensions etc. are a worry. Unfortunately, there are going to be many businesses that won’t survive this pandemic and there are others that will be transformed.  This could be the beginning of a new way of working for us all.  Although Government intervention with £330B sounds impressive, I don’t think grants or loans will help long term because this money currently needs paying back.  If the Government gives it as aid, the money has to come from somewhere and most likely in the form of increase in income tax, corporation tax, VAT etc.

Social impact

All our lives are on hold.  Sporting, social, family and business gatherings have been cancelled. Our elderly and vulnerable are going to feel isolated, alone and frightened.  We should all do what we can to help those in need and put the extra effort in to stay in touch and help them.

Many have moved to remote working where possible.  This in itself is no problem but there are plenty of jobs where that’s not possible.  Where it is possible, technology comes in to play here and we have been talking for some time about utilising technology to enable smarter working and now we are forced to make this work.  For those who already work from home/ hot desk, it won’t make too much difference, although previously it was optional.   This is likely to open a can of worms for those that get used to working in this way and see the benefits.  When we are over this, what is the advice that should be given from a HR prospective? Will remote / flexible working become the new norm?

Climate change – the positive impact

Every cloud has a silver lining.  The impact on climate change is going to be a positive one due to the immediate reduction in travel on a local level and globally which will help offset some of the negative impact that’s coming.  The downside of course, is the businesses that rely on this to make a living and to keep people in jobs. The airlines, hospitality, leisure industries are going to be hard hit but where do we draw the line at Government intervention?  If you do it for one, morally you should do it for all.

 

IR35 delay helps for now but more should be done

The delay of IR35 for 12 months is a small reprieve but more needs to be done in terms of its revision, implementation and general catch all.   It does however allow private sector businesses to utilise short term, flexible experienced interims to help restructure, change, transform, turnaround or provide practical business experience, HR advice etc. I think this will be needed more than ever as organisations come out the other side and (depending on the lock down scenario) will need it to get them through these uncharted waters.

Engage with the experts

The benefit of using experienced executives on a short term basis is to impart their knowledge and expertise on how to navigate through this as they have been there before. They can then be fully utilised for either restructuring, turnaround, change or enabling BAU.

Few business and political leaders have had to lead through a pandemic of this nature nor deal with the economic fallout.  Several factors will come in to play including, how they deal with uncertainty, the structure and adaptability of their businesses, how they are affected personally and how agile they can be to what will be a new world. 

Perhaps now is the time to bring in the help to have any chance of survival and hold open the jobs, ride the return to normality wave and go on to prosper.  Panic is not the answer and indeed more consideration should be given to working through this. Change, transformation, restructuring and turnaround experts who can quickly get to grips with the issues, have expertise in crisis management, can advise Boards on the best course of action and implement and deliver the plan.  Waiting is not a strategy.  Adaptability, innovative thinking and willingness to change might just be the survival strategy that’s needed.   

By utilising the experts, many of whom are available, organisations of all sizes will be stronger and more resilient for the future upturn that will come.

Let’s talk. Please get in touch for further discussion.

Keep safe.

Steven Wynne, MD Macallam Interim Resourcing

Tel: 01423 900804

E: steven.wynne@macallaminterim.com

IR35 - What you need to know

What is IR35?

IR35 is a complicated set of tax laws that form part of the Finance Act and impacts contractors, freelancers and interims operating via their limited companies. The first piece of legislation came into force in April 2000 and is otherwise known as the Intermediaries Legislation.

IR35 is designed to reduce tax avoidance by contractors who HMRC believe to be “disguised employees”.  People who work in a similar way to full-time employees but bill for their services via their limited companies to make their business as tax efficient as possible but whose relationship with their client is such that had they been paid directly they would be employees of the client are considered to be ‘disguised employees’.

IR35 aims to address the group of contractors who;

(a) operate through an intermediary company, typically a personal service company (PSC) which is a limited company that they own, and

(b) would otherwise be classed as employees in the absence of the intermediary. For example, working permanently and full-time for a single client (that resembles an employer).

The majority of these transactional relationships are genuine, and there are plenty of sole trader limited companies operating in the UK. However, it’s not uncommon for some organisations to pay people in this way so that they can avoid paying employers’ National Insurance contributions or providing employment benefits.

When is this happening?

In April 2017 the Government introduced the "Off-Payroll Reforms", which is a separate piece of new tax legislation that applies to the public sector, but which is also referred to as "IR35". The Government is replacing the original IR35 legislation with the new Off-Payroll Tax, which was initially introduced into the public sector in April 2017, and will be extended to the private sector from April 2020.

What is the new Off-Payroll Tax?

The new Off-Payroll tax came into force by HMRC as it became apparent that the original rules were unenforceable. Whilst they both contain the common theme of "deemed employment", the newer rules introduce a different set of tax treatment, meaning that organisations  will now have to assess the contractor’s status, but, more importantly, pay employment taxes on top of the fees paid to the contractor.

Why did the government introduce IR35?

IR35 legislation ensures that contractors pay the same tax and National Insurance contributions as an equivalent employee would. The new changes to be implemented in April 2020 for private sector contractors will transfer responsibility from contractors to large and medium companies to assess IR35.

Since 2000, contractors have been responsible for self-assessing their IR35 status and National Insurance Contributions. This arrangement has been ineffective and HMRC estimates that, under current rules, the cost of non-compliance in the private sector would escalate to £1.3bn by 2023/24.

Another problem that has contributed to the changes is the scenario where an employee ceases their employment with their employer on Friday only to return on Monday to do the same role in the same location.  The difference of course is that they return as a contractor or consultant trading through a personal services company and pay less tax. 

This can also save the engaging organisation a significant amount of cash, as they no longer have to pay employers’ NICs of 13.8% or the Apprenticeship Levy of 0.5%.  It also means they do not have to offer any employment rights or benefits.

Who will IR35 affect?

IR35 is not only determined by the contents of a written contract, but also looks at the actual working practices. When the working practices do not reflect the contractual terms, the working practices will take precedence over the terms of the contract. There are many aspects to consider when determining whether a contract is subject to IR35, but the two most important factors are;

Control (right of): what degree of control does the client have over what, how, when and where the worker completes the work.

Substitution: is personal service by the worker required, or can the worker send a substitute in their place?

If the client has no right of control over the manner in which you carry out your work and you have the right to either send a substitute worker in your place or sub-contract some of the work or engage other workers to assist you, then it is likely that your contract will fall outside of IR35.

Other factors are then taken into account to determine whether you are caught by IR35 include the contract type, provision of equipment etc. HMRC will apply an employment test to each case that is based on the actual working practices rather than the contract.

All of this evidence is taken into account, and if the balance of probabilities is that the worker is an employee then IR35 applies.

Where the client or end-user is a small business, the PSC will continue to be responsible for assessing if IR35 applies.  Small business, for the purposes of IR35 are;

·         Businesses with a £10m or less

·         Balance sheet of £5m or less

·         50 employees or less.    

If the client or end user is larger than this, they have to make the decision on IR35.  

Can IR35 be avoided?

IR35 can’t be circumvented by organisations, other than to make the choice to engage all contractors on fixed term contracts (FTC).  This would be an expensive, albeit less complicated way of dealing with IR35.  Larger organisations would then have to negotiate with all the contractors they are currently engaged with to take a significant cut in rates in order to cover the additional costs although could be a solution for smaller businesses that don’t use interims that often.

However, for organisations engaging self-employed contractors, IR35 will not apply. That does not prevent HMRC from launching an investigation at a later date.  For those who wish to engage interims outside IR35, and mitigating any IR35 risk they can use IR35 tests to determine if this is correct.

What are the main changes to IR35?

The new IR35 legislation to be introduced in April 2020 shifts responsibility for assessing IR35 obligations from the contractor or PSC to the end-user, which is the company that is the end client.

Where the client concludes that IR35 applies, the ‘fee payer’ (which may be the end-user themselves, a recruitment company, or other third party paying the intermediary) will be responsible for accounting for and paying the related tax and NIC to HMRC, including the additional cost of Employer’s NIC.

Under the proposed changes, the new rules aim to reduce the cost of non-compliance and make it easier for HMRC to monitor and enforce compliance in the future.

However, determining whether you are caught by IR35 is complex, and ideally you should seek expert IR35 advice.

Further Reading and IR35 Resources

HM Government Good Work Plan, December 2018 (Pdf)https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/766167/good-work-plan-command-paper.pdf

Guidance: Off-payroll working through an intermediary (gov.uk) https://www.gov.uk/guidance/understanding-off-payroll-working-ir35

Policy paper: Rules for off-payroll working from April 2020 (HMRC, 11th July 2019) https://www.gov.uk/government/publications/rules-for-off-payroll-working-from-april-2020

IR35: Working through an intermediary (gov.uk)  https://www.gov.uk/topic/business-tax/ir35

 

Cognitive Bias

One of the earlier interim industry benefits (>10 years ago, before the 2008 financial crisis), was an independent interim’s ability to challenge client ‘cognitive bias’, for example, by suggesting betters solutions to ‘the way things are done around here’.

The interim’s ability to tactfully challenge came from experience across many clients and, especially, many sectors.

Client Challenge Example

I recently challenged cognitive bias at a Contracting industry client. Long-standing family and industry mind-sets and practices were tested to create new solutions collaboratively.

Example solutions included technologically advanced (for a ‘basics’ industry), end-to-end digital transformation of core processes and clean data sources for better decision making, having endured paper-based processes and dirty data for many years.

Imagine, if you will, basically educated road workers using mobile devices to capture risk assessment evidence (photos), to track job workflows and to reschedule work priorities; quite a transformation!

The client also turned around from loss-making to profitable in nine months on the back of this, and other cognitive bias challenges.

Commodity Driven Candidate Selection

The Interim Service Provider (ISP) challenge to clients’ mind-sets via their selected candidates appears to have taken a back seat in recent years. It has been replaced by narrowly specified candidate sector experience and CV brokerage introduced from contractor/commodity recruitment practices.

Interims now tend to meet with clients via ISPs selected for client sector fit rather than the ability to champion change and transformation based on broad skillsets and agnostic sector experience.

I think this practice does not well serve UK Plc and the client-ISP-interim industry.

As one respected interim recruiter put it recently: “'More of the same' only results in 'more of the same'.”

IR35 Likely Effects

An evaluation of the proposed 2020 IR35 changes is a likely dramatic impact on the current interim and contractor industries.

There will be a confirmation of independent interims outside IR35; and contractors becoming ‘part and parcel’ of the client and inside IR35, effectively employees.

The New (former) Interim Approach

The commodity-based marketing practices which entered the interim space ten plus years ago will be replaced, if not already, by consultative approaches to client solutions, above, say, £700 per day interim rates.

Multiple CVs emailed to clients will become passé, and ‘chats over coffee’ will make a comeback for both ISPs and interims to more fully explore solutions to critical client problems.

One recently visited IIM Platinum recruiter said he does not send CVs to clients, preferring to book coffee slots for clients to see three interims he knows can do the job.

I encourage clients and interims (when in an assignment, as clients) to take up this approach and ask ISPs to send interims they trust and know can do the job, rather than wade through copious CVs to select people, to then see as well.

Why should clients do all the work?

Perhaps this new approach could also serve clients in contractor selection?

Client Education

Key to a transition away from CV brokerage to chats over coffee with interims known to be able to do the job is client education.

Interims (per the IIM Surveys) find 60% of their assignments themselves, and ISPs the remaining 40%.

In my view, both interims and ISPs must educate clients in new ways of getting the best ideas, talents and capabilities for critical client change and transformation needs.

All three parties in the interim industry will win by preferring a consultative interim industry approach over client CV filtering.

ISPs will need to let go, though, of their fear of losing business by not sending many CVs to clients just in case they might send the right one.

ISP Branding

Another interim recruitment group I recently met has for quite some time separately branded their interim and contractor businesses not to confuse clients, and to focus consultants with the right skills on the right approach that fits the required client solution (interim or contractor).

Risks to Avoid

A risk I see (and two other ISPs recently visited), is the commoditised approach to interim engagement lacks sustainability.

Larger consulting houses (to whom commoditised CV brokering is anathema to their business models), will gain further market share in value-adding change and transformation work; and perhaps the interims too.

Another risk is interims forming interim practices with marketing capabilities to build on their 60% self-sourced engagements.

ISP Recommended Changes

A question for ISPs: how are you discerning, separately branding, marketing, and appropriately resourcing with skilled consultant’s client offerings?

For example:

• Do you make a distinction between interim and commodity approaches in your recruitment processes – are they clearly defined, or confused – to best serve the client base?
• Should your interim and contractor/commodity offerings have separate brands?
• Are your consultants then working with the right approaches and client connections?

Summary

It is difficult to challenge client cognitive bias (a major client benefit) in a CV. However, half-hour chats with clients about their challenges and discussing, among other things, ways other industries solve similar problems is where enhanced interim industry value-add will be gained.

All three parties (client-ISP-interim) will then be served better, and the reputation of the interim industry will grow in response because of the progression to a consultative approach.

Addendum

Of course, consultants do challenge cognitive bias. However, they lack the hands-on and in-depth leadership engagement that interims are renowned, to see what is happening deep inside clients’ businesses.

 

Article by Simon C Jones, Interim Finance Director/IIM Director

 

 

 

 

 

 

 

 

It's a people business

2014 has been a good year and indicators predict economic growth should continue in 2015, assuming of course political uncertainty doesn’t halt the momentum with the impending general election.   The recruitment industry as a whole has experienced annual growth of 8.3%, with rates reportedly at a 6 year high.

This is good news for candidates searching for  permanent roles and this is being mirrored in the interim market as demand for interim executives continues to rise. This trend has been reinforced by the latest Ipsos MORI results, which indicates a big rise in the use of interim managers across a number of sectors where businesses have a need for external resource due to a lack of capacity and/or capability.

More positive news for the Interim market is the support by the House of Lords Select Committee on Personal Services Companies that published a report highlighting the problems with IR35 and the administrative burdens it places on interim managers. The withdrawal of the Business Entity Tests (BETs) which were originally created to give contractors a means to voluntarily assess their IR35 risk but were actually making it more confusing to assess IR35 risk, should provide a clearer understanding of tax for the Interim manager and a less complex set of rules to come to terms with.

Despite recent growth in both the Interim and permanent recruitment market, statistics report that unfilled jobs are costing the UK economy £18bn a year revealing  some ineffective talent strategies.  Is it a lack of an efficient resourcing strategy or the  ongoing challenge for companies to locate and secure the right people quickly who are the right fit for the business?  Given the recently reported frustrations amongst candidates regarding the recruitment process, I would suggest the latter. Reports suggest that the candidate journey in the recruitment process is leading to frustration and wasted time which in turn, often sends the wrong (and quite damaging) message about the business with the recruitment need. Having the right partner to manage this is crucially important.

At Macallam Interim, we understand the importance of continual engagement throughout the process in order to improve the candidate journey and client  experience. We ensure we have a robust recruitment partnership that delivers the right candidate quickly. We  engage with the best of the interim market and not just those that are actively looking. It is about building strong relationships and having a pre-vetted network of top calibre interim executives from which to call upon.  The other element is the ‘sell’ of the clients business to the candidates.  This is often overlooked in the direct hiring process but can be the difference for a succesful outcome.

This partnership ensures we are quick to deliver for clients.  When we have a mandate it is often business critical and urgent.  Afterall, if it’s a genuine interim requirement that’s usually the catalyst for the need in the first place.  Knowing our way around the market is crucial to ensure we shortlist the very best available and appropriate candidates who will not only come to the table with a demonstrable track record of delivery and provide an impressive return on investment but have the credibility and gravitas to exceed expectations and make a real difference.

We constantly hear stories about businesses  being presented with inadequate candidates for their needs and end up wasting time and money having to start the process again.  Recent figures suggest hidden costs of £26,000 when hiring a new employee and this figure escalates  if the wrong hire is made.    Granted; this figure isn’t relevant for the interim market but nevertheless it should be taken into account when ‘interim’ is used as a way of short cutting the recruitment process for permanent roles.

We operate in specific sectors but also have a wide reach to other associated markets.  We believe skills are transferable and find a fresh set of eyes on a situation often yields the quickest and best result. Relationships often take us into new sectors but as long as the right process is followed, the right result will be found.

The candidate journey (as well as clients of course) is hugely important to us.  We believe that anyone we engage with should be treated as we expect to be treated.  Perhaps this is why our relationships are often interchangeable between ‘candidates’ and ‘clients’.  Candidates today often becomes clients tomorrow and vice versa,  As such the Macallam experience leads to referrals and a high level of repeat business thus reinforcing the simple fact that we are in the people business.

To discuss how we can help, please call 01423 704153 or e-mail steven.wynne@macallaminterim.com

The Interim Management sector and the Budget

The budget appears to be OK for business but what does it mean for the interim management sector?  Following the Governments U-turn and decision to abandon the ‘controlling person’ proposals recently, most involved in the interim management world were expecting IR35 to feature in the budget.  All we saw was a brief mention with a reference that ‘office holders’ will be affected by IR35.  The main budget document briefly states that ”as announced in the Autumn Statement 2012, the Government will make a small amendment to the existing IR35 provisions to equalise the tax and NICs treatment of office holders, and put beyond doubt that the legislation applies to office holders for tax purposes” (2.192 of the Red Book).

It’s not much to go on and there doesn’t appear to be a legal definition of what an ‘office holder’ actually is.  There is a judicial definition of ‘office’ that is referred to in HMRC’s status manual that states it’s a  “permanent, substantive position which had an existence independent from the person who filled it, which went on and was filled in succession by successive holders.”

That’s all well and good but I still don’t see that this should affect Interim Executives operating through a limited company.  When an organisation engages an interim executive to deliver a specific set of objectives or project for a short period of time with the agreement and expectation the individual will exit once the agreed objectives have been delivered, then this is not a permanent role, should not be on payroll and not treated by HMRC as if it were.

Perhaps clarity on timescales is a better way of dealing with those that are abusing a loophole rather than labelling them as if they were a long term ‘office holder’.  Encouragement should be given to those that can help businesses on the road to recovery through short term help.

We seem to be in a similar place when ‘controlling person’ was being debated but just a different terminology.  If IR35 legislation is amended to include limited company contractors acting as ‘office holders’ (Treasury guidelines state that ‘office holders’ are senior personnel occupying specific position at Director level), surely this can’t include those who are ‘office holders’ of their own company?

It doesn’t do much to help rejuvenate an already fragile economy.  Organisations in both private and public sectors can gain some real value in a short period of time through the engagement of an interim executive where a permanent appointment might not be necessary or in the budget.  As a result they might well be in a better position to invest in growth / product launches, contracts, M&A etc. which in turn creates more opportunity and jobs.  Surely we need to continue developing and building the interim management market beyond the £1.5B it is worth today and encourage more talented individuals to a career where they impart their extensive skills and experience on organisations in need of change.   We don’t need to risk losing new entrants (serious about embarking on a career as an interim) or the experienced practitioners either into permanent roles, retirement or worst still, overseas. 

By Steven Wynne