The unexpected impact of IR35 on SME engineering service providers

The impact of IR35 on SMEs

Despite a one year delay to its implementation the impact of IR35 has already been widely felt, with the engineering industry already being turned on its head...

Warley Design writes:

The design & engineering industry has traditionally had a strong foundation of individuals providing mechanical / hardware / PCB layout / analysis services on a contract basis.  Companies both small and large recognise that they rely on these individuals to add either capacity or capability to their resource pool.

Turning an industry on its head

The UK Governments’ IR35 ruling has turned the design/engineering service industry on its head.  The ruling has been put into place to ensure that contractors are declaring and paying the full amount of due income tax and NICs. Prior to this year the responsibility to ensure this happens has been with the contractor, but from 6 April 2020 this responsibility was due to pass to the hiring company. An important detail is that the legislation applies to medium to large hiring companies but not to SMEs.

The COVID-19 pandemic has resulted in a last-minute delay of one year to the implementation of IR35 but the industry reacted in preparation before the change of date and the wheels of industry were set into motion.

The Impact of IR35

It is evident that many large organisations have let their direct contractors “go” to avoid picking-up the responsibility of managing their taxes.  We’re aware of several clients who have released all contractors and then put on a recruitment drive in order to bring the capabilities back in-house to plug the gaps.  One such client has put a complete block on their purchasing department sourcing any external design services and this has had a direct impact on WDS.

No change for Warley Design

This needn’t be the case. At the core of Warley Design Solutions we have full-time employees who are registered for PAYE.  We do and will continue to work with trusted associates who offer services on a contract basis, but being an SME we can continue to do this without contravening the new tax rules.  Going forwards, our clients will be able to continue to engage us without being caught-up in the implications of IR35, and with it add both bandwidth and depth of expertise to their development programmes.


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Experienced product development professionals who provide innovative mechanical design solutions for electronic products in industry sectors where reliability and performance needs to be assured.

Warley Design Solutions Ltd.