Sondrel warns of financial risks due to new UK IR35 off-payroll tax reforms

Sondrel, Europe’s largest independent IC design consultancy, believes that the electronics industry will be changed significantly by the UK’s new IR35 payroll tax change that comes into effect on 6 April 2020.

On that date, it becomes the responsibility of hirers to assess the employment status of off-payroll workers such as freelancers and people contracted via their own small companies. According to a recent article in the Financial Times, this process can be complicated and carries penalties if incorrectly applied, so many firms are no longer using contractors through limited companies.

Joe Lopez, Sondrel’s CFO, said: “The Electronics Design industry traditionally uses a large number of small design consultancies as they provide the flexibility and expertise for customers to bring in designs skills as and when they are needed specifically for a project. However, now the customer will have to assess every contract in the light of IR35 with the possibility of HMRC imposing financial penalties on the customer for an incorrect assessment. This additional administrative burden and risk means that many customers are stopping the use of such contractors for new projects. In addition, existing contracts are covered by IR35 and will need to be assessed and may need to be moved to a large design consultancy where there are no IR35 risks.”

Graham Curren, Sondrel’s CEO and Founder, added: “This is probably the end of the well-established and widely used model of electronics designers selling their consultancy expertise via their own company. As a result, we have had a huge number of enquiries from designers wanting to join Sondrel.

“Fortunately, we can take them on board as we have a corresponding increase in work, driven by customer concerns over IR35 as we have zero risk exposure for customers. Our broad range of digital design expertise and currently over 200 design engineers means that we have the capacity to smoothly take on new and long-term projects that have been impacted by the IR35 change.”