For the past year, the Life Sciences sector has been a focal point in the world’s COVID-19 response. Even in the early days of the pandemic, the research gathered from our global client base showed that demand for specialist skills remained high and pharmaceutical manufacturers were rapidly scaling output for vaccines and treatment.
If rolling out an approved vaccine and the uncertainty surrounding the last leg of Brexit trade talks were not complicated enough, pharmaceuticals businesses must also now prepare for changes to IR35 legislation. The impending alterations to how they’ll engage with contractors may not be at the top of their to do list – but it should be.
Our most recent insight shows that 70% of our clients are struggling to find the talent they need, despite application rates increasing as much as 300% in some regions. So, it would be sensible to invest time and resources into reviewing what the legislative changes will mean to businesses who wish to continue to benefit from engaging with flexible workers post reform.
What is IR35 and why does it matter?
Since 2000, contractors using a Limited Company to supply services to their clients have been responsible for deciding their own tax status. From April 2021, this will change.
The end-client will be tasked with and legally obliged to decide if the rules apply to the assignment the contractor is working on. This is more commonly known as being Inside or Outside IR35 and is similar to changes that were rolled out to the Public Sector back in 2017. Once the end client has made their determination, they have to ensure that they pass that status on down the supply chain.
Failure to do any of these things will result in the liability for unpaid tax and National Insurance contributions sitting with the business. There could also be the added risk of fines and even potential reputational backlash. As a result, it’s important that businesses start preparations now – if they haven’t already.
The warning shots fired at the sector
Back in August last year, HMRC targeted contractors in the pharmaceutical sector with a raid on those supplying services to GSK.
HMRC went directly to GSK and were able to obtain data relating to 1500 contractors working for them and followed up with them all individually stating that they believed the correct tax for 2018/19 had not been paid to the revenue.
It is understood that HMRC targeted a big player in the pharmaceutical sector as they believe there to be widespread non-compliance in the industry as a whole with regards to the IR35 rules.
This may have been a warning shot; however, the reality will kick into the sector from April next year. It’s clear already that not enough businesses are making the necessary arrangements to prepare. Only a few weeks out from the planned go live earlier this year, a huge 67% of end-hirer respondents to our House of Lords finance bill subcommittee survey stated that they were not aware of how to implement the rules correctly.
April may still seem a long way off but to avoid finding yourself in the same position as those clients who have yet to start the preparations, there is a lot to do.
What are the risks of not preparing?
Companies across the Life Sciences sector must put in the work now to remain competitive and continue attracting the contract talent that enables them to gather sectoral expertise and fulfil short-term projects. Lack of preparation will likely see existing contractors leave and look for alternative contracts where the client has prepared and does understand the legislation and their requirements in relation to it.
Again, our data shows that talent will be a key differentiator in the recovery phase of the pandemic. Organisations that can adapt will likely fare better than others.
If the correct determination hasn’t been made, another impact will be that the client may have to pay a higher rate to procure the same service. Not something anyone running the finances within a project or business will want to hear, especially as this is an avoidable cost hike.
With an increase in demand for contractors with sectoral expertise to come in and supply short term projects, it’s now vital that businesses have a pragmatic approach to the changes, a clear plan in place and communicate this clearly.
The pharmaceutical sector has always been a competitive place, perhaps even more so of late due to the pandemic, making it especially important for clients to put the correct education, processes and procedures in place to continue to attract the best contract workers.
The good news
We have seen first-hand that businesses are more prepared this time around, which is great to see. Companies even going as far as changing their minds on the previous blanket decision and making policies that they had put in place earlier this year. It’s a welcome change, however there are still some organisations who are sticking to a no Limited Company policy despite staffing businesses having perfectly matched flexible workers ready to go. This type of decision-making is costing the businesses looking for talent in more ways than just fees
What is the solution?
It’s all about balance. There will be impacts for companies deciding to take a hard stance one way or the other. If businesses can strike it right and put in place a fair determination process that ensures reasonable care, continuing to engage with the flexible workforce is very simple.
Businesses need to have a clear plan in place and communicate that plan to the incumbent workforce. Working closely with the contractors they have now and making the decision by taking all factors into consideration.
Where the determination is going to be Inside IR35, ensuring a compliant supply chain who have the ability to engage with the contractor as they should be will be imperative. If businesses or agencies are going to be using an Umbrella Company in the supply chain, ensuring they are FCSA accredited is a very safe and sensible place to start.
The flexible workforce is one of the most important components of the Life Sciences sector and will be the engine to its growth. Everyone in the talent supply chain needs to do what they can to support the flexible workforce which in turn will get the UK on track to a quick recovery allowing the Life Sciences sector to deliver what it needs to over the next few years.
Final thoughts
Can businesses continue to engage with contractors supplying services via a Limited Company on an outside IR35 basis? Yes, absolutely. Businesses should make this a key priority and make sure they do it correctly.
Charlie Cox is commercial director at recruitment company SThree
