Further evidence of the damaging effects of new IR35 rule changes to UK businesses involved in the staffing supply chain has emerged in the latest trading update from technology-focused consultancy and recruiter Parity Group.
Reformed IR35 rules came into effect in April this year, targeting contracting professionals working in the public sector via their own personal service companies. The measures met with fierce criticism during the consultation phase from experts in the staffing industry as well as from bodies representing contracting professionals.
Those condemning the reforms as unworkable and unfair included Umbrella Company trade association PRISM, Umbrella Company trade body the Freelancer and Contractor Services Association (FCSA), the Recruitment and Employment Confederation (REC) and the Association of Professional Staffing Companies (APSCo). Despite this opposition, the Government proceeded to implement the new measures.
Parity Group’s latest trading update covers its performance over the six months ending on 30th June 2017. It follows the company’s AGM statement on 25th May, which described its performance during the early part of 2017 as “satisfactory.” The new announcement reveals that “there is clear evidence that we are maintaining momentum.” Operating profits for the Group are now expected by the Board to show double-digit growth in the second half of the year.
However, the statement also reveals that IR35 changes have played a part in inhibiting the Group’s profitability. While it intends to continue rebalancing its business towards its more profitable Consultancy Services, which are running “ahead of expectations” by generating significant revenue growth compared with the same period last year, the Professionals division (which includes the placement of contracting professionals) has not fared so well.
The statement reads: “The lower margin Professionals division has seen slightly lower revenues in the first half compared with H1 2016 as a result of lower public sector contractor volumes resulting from supply side uncertainty and then the transition required to deal with the IR35 taxation reforms.”
Despite this contraction, the statement continues, early signs now indicate that the division seems to have “weathered the process more favourably than some other staffing businesses, and client demand has been restored post-implementation.”
Last week, Crawford Temple, CEO of PRISM, told People Management magazine that any attempt to extend the new IR35 legislation into the private sector would have a “catastrophic impact” on UK businesses, while FCSA CEO Julia Kermode told the Chartered Institute for Personnel and development (CIPD): “The gig economy has been widely credited with enabling economic recovery so far, so it is unthinkable that the Government might be prepared to jeopardise this.”