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Will 2020 be the end for IT contractor firms?

I have a large number of IT consultants on my books and am getting worried.

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Good morning all,

With the new off payroll rules coming in during April 2020, does anyone think that a lot of accountancy firms that specialize in serving IT contractors could see their client base slashed by around 20% - 30%?

I am not sure if this will be a good thing or bad thing for me?

Although I stand to lose a large chunk of my client base, I potentially stand to pick up some clients if larger firms such as SJD, Crunch, Nixon Williams, etc get bowled over.

Also, why on earth are firms like Clearsky, Brooksons and JSA buying out loads of smaller IT contractor firms in light of the new off payroll rules? Surely these guys will struggle to pay pack the loans that they have taken out to buy their acquisitions when their client base is slashed? Also, presumably they will struggle to grow as fewer and fewer roles will require limited companies in the first place. 

I think the Free Agent owners did the smart thing by cashing out and selling to RBS because presumably their client base will be slashed too.

Great time to be an umbrella company though (assuming Labour don't get elected).

2020 is sure going to be stressfull time (assuming the off payroll rules don't get postponed).

Replies (9)

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By ireallyshouldknowthisbut
12th Apr 2019 09:08

Yup, we are going to lose quite a number. How many depends on how business react to the new rules. They might just shrug their shoulders, they might insure it, they might ensure they get a contractors status on file, or they might stuff them through payroll one way or the other. I imagine all of the above will occur, which is why its hard to predict how many will be left.

I have been careful who we pick up in the last 3 years, and only taking on the ones who look like "proper" contractors and not ones who are in the grey zone.

This time in 12 months is going to be a lot of work and arguments about status and HMRC's rubbish status tool.

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By SteveHa
12th Apr 2019 09:36

I used to work at Brooksons (not my cup of tea - conveyor belt accountancy), and am so glad that I don't anymore. I see a lot of jobs being shed there.

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Slim
By Slim
12th Apr 2019 09:51

The writing has been on the wall for some time.

I think it will be messy and will lose the majority of these clients.

Thanks (1)
Glenn Martin
By Glenn Martin
12th Apr 2019 10:22

I think you under estimate the ability of the firms like SJD to adapt.

They are compliance factories driven by process. MTD is a big compliance project. In NZ & Aus where they did their version of MTD 5 years ago huge amounts of clients were brought into compliance and the number of accounting firms increased greatly.

I think you will find they will adapt to deal with MTD filing if contractors drop off (which has been said for about 10 years)

The next nut to crack will be if MTD rolls out to accounts and non vat businesses.

Who will do the sole trader taxi driver, window cleaner 5 submissions a year at a price they can afford?

I suspect the online firms are best placed to come up with a system that will deal with this as already I see many small firms shedding sole traders as the clients no one will want soon.

Although not an area I would fancy dominating there is 2m customers up for grabs in that space, so could be worth it to someone who can come up with the right solution, at a price the market will stand.

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Replying to Glennzy:
Andrew Garvey
By AndrewGarvey
12th Apr 2019 10:58

Having worked with quite a few of the firms mentioned I would agree with your comments Glenn.

The processes that are in place at some of these firms will be ideal for processing lower margin work for sole traders.

The biggest challenge they will face is how to attract clients at scale. Many of them now attract contractors through partnerships/referral arrangements with recruitment agencies.

Acquiring sole trader/one person businesses is more fragmented so will require a lot more investment in marketing.

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Replying to AndrewGarvey:
Glenn Martin
By Glenn Martin
12th Apr 2019 11:06

An attractive fixed fee will probably do it, get your all in taxi driver compliance package for £x on a 1 size fits all approach.

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Replying to Glennzy:
Andrew Garvey
By AndrewGarvey
12th Apr 2019 11:21

Once you've got their attention I'd agree.

Getting the attention of enough taxi drivers to generate the 5-15,000+ clients these firms need to be at scale is the challenge.

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Replying to AndrewGarvey:
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By GR
13th Apr 2019 09:15

SJD, I believe, was bought for around £100M around 4 years ago on the basis of high margin work, i.e. charging a simple tiny 1 man contractor company a huge £120+VAT per month. I do not think they are going to try to compete with the software companies and banks (tide, counting up, coconut, etc) who can offer a similar sole trader submission service for around £10+VAT per month. I think it is important to remember that automation, artificial intelligence and machine learning that banks and software companies use will wipe out a lot of the sole trader work in the next few years. SJD will not be able to attract sole traders at £120+VAT per month. SJD etc are on the verge of becoming the next Toys R Us, House of Fraser, Debenhams, Dixons, JJB Sport, etc.

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Replying to Glennzy:
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By GR
13th Apr 2019 09:07

SJD don't seem to be interested in dealing with sole traders. They used to have a separate firm/brand called Easy Accountancy to deal with this however it seems to have disappeared. Also, sole trade clients are unlikely to pay SJD's £120+VAT per month price tag just for a tax return (and may be some VAT returns). I think the entities best placed to pick up the 2M sole traders will be software companies or banks (e.g. Counting Up, Coconut, Tide, etc) that allow the sole trader just to submit everything themselves for £10+VAT per month. SJD won't be able to compete with banks and software companies offering a £10+VAT price point (because SJD charges £120+VAT).

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