Systems, IR35 and Brexit. The critical issue.

You’ll be forgiven for saying IR35 hasn’t got anything to do with Brexit.  But it has.

In yesterday’s Budget, Philip Hammond said of IR35:
“…so that individuals working side by side in a similar role for the same employer…
…pay the same employment taxes.”

But whilst they might work similarly technically, they are not similar commercially, are they?

Firstly contractors, to which IR35 can apply, have to carry Professional Indemnity and Employers Liability insurance, because the client/employer could sue them in the event of an insured problem, Not the case with employees.  There’s a hefty excess the contractor has to bear in the event of a successful claim.

Typically contractors are on a week’s notice, not a month or three.

If they become ‘redundant’ they are still officers of their companies (or partners in partnerships), and so are not unemployed and eligible for unemployment benefits like employees who pay Class 1 NICs. These are not appropriate to be paid, at least not in full.

And clients/employers can turn round and throw them out with no notice, with little or no right of reply, neither with the client/employer nor an employment tribunal.

In the event of the client/employer’s bankruptcy, employees have statutory rights to payment.  Contractors (and their agencies) are just standard suppliers at the end of the queue.  That typically means nothing paid, and a long wait in hope too.

That last point may be why Philip postponed the introduction of the extended IR35 rules to private sector that have already applied to the public sector, which is lower risk.


SO WHAT HAS THIS GOT TO DO WITH BREXIT?

The National Audit Office has recently published a report that, as reported by Computer Weekly, “All but one of the critical IT systems needed at the UK border are at risk of not being ready by 29 March 2019, which will have implications if there is a no-deal Brexit”.  That’s 11 put of 12.

But that doesn’t include all those other systems that may need to be built from scratch, for aspects currently covered by the EU that the UK will take on, or where the collaboration changes substantially. Tens more systems, if not hundreds in the UK public sector alone.  Plus Brexit projects on the continent and in the private sector.

Indeed to build systems of this complexity and size are not usually measured in weeks, nor even months, but years:

• Establishing the basic requirements’ around what would be the ‘framework’ of the EU agreement, whilst the detail is being determined.  Say 2 years.
• Once the detail is available, designing the system in detail.  Say another 2 years
• Then building the system, the processes and testing it, say 3 years
• Then recruiting the people and training them on those processes.  Debugging the processes and the system.  Say a year.
• Steps that are best done in series. Very roughly a total of 8 years, plus a couple more for contingency.  Per system.

Each project that would be best planned to be done over 10 years. In isolation.  Not in parallel with dozens of others.

So where are all the people going to come from to do all these projects in the public sector?  When there are dozens of parallel projects in the private sector? In 10 years, let alone 10 weeks in early 2019, if by then a No Deal is clear?


AND THE RELEVANCE OF IR35?

IR35 as applies to the public sector since April 2017 puts contractors at a distinct disadvantage compared to how things were before then, and how the private sector remains.

Who’s going to work on UK government projects unless the headline rate for the work rises dramatically?   There will be Brexit work in the UK private sector, and on the continent too, to do instead.

Some of us will remember all the work to fix the millennium bugs, which was generally less work per system.  People started working on fixing the issue some years ahead, not a matter of weeks, and as a result the public saw little in the way of problems.  But I know of a car that couldn’t have its MoT in early January 2000 because the system had failed due to a millennium bug.. In the run-up to 2000 skilled resources were hard to come by. 

So even if the headline pay rate increases, it will be difficult if not impossible to resource that many Brexit system projects at a sensible quality.  Imagine the problems from rushed, botched system builds?

There is simply no hope of getting sensible systems ready for a No Deal Brexit by next March 2019.  There's also little hope of getting systems ready by December 2020, the end of the 'transition period'. 


SO WHAT NOW?

The Brexit deal was supposed to have been approved at the recent EU summit.  That was the deadline.  Anything later is too late, as there is still a high risk of No Deal, given the more difficult issues are still to be resolved.  People and businesses cannot plan more generally for 2019 yet.

If this was a business, the Board would have stopped the Brexit project there and then, a couple of weeks ago.  That is the only responsible action by the UK Government, however that is achieved politically.  Here are some suggestions.

#StopBrexitNow