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12th DECEMBER 2022

What’s been happening?

In September, Chancellor Kwasi Kwarteng announced plans to repeal controversial changes to off-payroll rules — known as IR35. Our Conservative MP was delighted, “We’re now seeing some proper pro-business, pro-entrepreneur, pro-worker, pro-enterprise, pro-flexible labour market policies…terrific!”

Less than two months later Jeremy Hunt reversed that reversal, perhaps demonstrating ignorance of the benefits of the UK’s flexible economy. Worse, his decision underlined IR35’s role as a tax on companies hiring interim change management expertise.

What is the operational and financial impact?

Take client A. They have hired an experienced interim to deliver an operational change programme. Day rates paid to hire the interim are around £1800 – £2000 per day all-in. This includes payment of a daily introduction fee to a specialist recruiter. For this daily cost, client A gets immediate access to an interim who has experience of delivering change programmes – working as part of the business.

Client A has also hired a few ‘Big 4’ consultants to work on group change strategy, programme governance and some implementation. Firms charge businesses £5000 per day, per consultant, minimum. Client A may have decided that some elements of the change programme require oversight by an external firm. There could be a range of reasons for this, including the belief that a consulting firm offers best practice in terms of programme governance. Yet, most experienced interim programme directors do this – and implement it – every day. If it is risk management client A is concerned about, every interim offers full professional insurance combined with years of relevant experience.

There is another school of thought which may explain this decision. Hiring consultants from a large firm – when arguably experienced interims could also have delivered the same work – suggests the invisible hand of IR35 is at work.

What is the cost of IR35 to businesses and the economy?

The change in application of IR35 means that the assessment of employment status for tax purposes is now the responsibility of client A. Rather than work out if an interim is ‘inside’ or ‘outside’ IR35, there is plenty of evidence that companies are choosing to bring in consulting firms to do the same work. The thinking is that this removes the need to assess employment status of those who are delivering change. However, there is a hefty cost for this.

The interim in this example is experienced. The all-in daily cost for hiring them is £1800. The daily charge for a comparably experienced consultant is at least £5000 per day. Over the course of a 12-month change programme, the extra cost of hiring a ‘Big 4’ consultant will be more than £750,000 per consultant. But that’s not all.

A management consultant works for and takes direction from their consulting firm. The interim is given a brief to deliver, but they decide how best to deliver it. They will provide plenty of programme governance, but will also operationally deliver, as part of the business.

Why is taking on an interim both operationally and financially beneficial to organisations?

The huge benefit of an interim is that you get hands-on, senior-level expertise on-site, working with you for the entirety of the assignment. An interim answers to you and your business. Intellectual property stays in the hands of the business too.

Why is IR35 so damaging?

IR35 has made bringing in change delivery capability fraught with risk and unnecessary expense. The irony is that some consultants may even be freelancers themselves, badged as a ‘Big 4’ consultant. Yet, they often have less operational experience than the experienced interim.

Because this tax rule appears to discriminate against experienced interims, IR35 is effectively a tax on change. As its rules are not clear to many, hiring change expertise is seen as a business risk.

The value interims add to the UK economy – particularly in productivity gains and knowledge sharing – is significant. They offer operational change delivery expertise quickly, flexibly and for excellent value.

I would argue that interims are game-changers when companies need to deliver or accelerate change, transformation, turnaround and upskilling of teams.

Let’s call out IR35 for what it is: an ill-judged anti-business tax on change and the flexible expertise economy.

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