Axiom, Lawyers On Demand, Obelisk, Vario — just a few of the flexi-lawyer businesses that have in recent years flourished on a shared ethos: challenging traditional law firms by delivering flexible legal support to major companies at competitive prices.

But is an incoming piece of U.K. tax legislation about to end their once-unfettered ascendance?

Over the past decade, the flexi-lawyering industry has boomed as an alternative to expensive, rigid traditional private practice law firms that in-house counsel had grown weary of.

However, on April 6, 2021, the IR35 comes into force, and many expect it to unsettle the status quo. It is a piece of anti-avoidance tax legislation that narrows in on determining who is a contractor, and who is a so-called "disguised employee" that should be on a company's payroll and therefore subject to PAYE rules.

It is designed to close a purported loophole in U.K. tax law and ensure that contract workers, who work on much the same terms as company employees, are subject to broadly the same tax rules as employees. For client businesses that use flexi-lawyer services, it will mean a mass reassessment of how to classify the contract lawyers they have on their books.

Some general counsel fear that IR35 will dilute the cost-competitiveness that such services provide, that will ultimately result in a shrinking flexi-lawyer market. However, others say that the legislation adds just another layer of disruption to a market already facing significant challenges.

One GC indicated that FTSE 100 businesses with "fewer contractors on their books" may stop using flexi services altogether, due to possible additional "constraints".

A general counsel at a major betting platform agrees that people will not "want to be contracting lawyers". They foresee a reluctance of clients to bear significant additional cost pressures were lawyers had to be designated as employees, thereby reducing supply overall.

"Whether interim resource is available post-IR35 will be a matter of supply", they said, "but I don't think companies will pay much for it.

"There is not much more additional cost that can be borne by the interim market, so naturally people will stop using these services."

Is it really that bad?

But not all general counsel speak in such foreboding terms about the IR35′s impact on flexi-lawyering.

A GC of an online retailer said they would not feel "inhibited" by the requirement to reassess workers, while a tech GC said incoming changes "should not be too complicated", but that they would advise other GCs to put interim lawyers on a part-time employment contract instead.

The two GCs expect that the market will not change dramatically for most alternative legal service providers, including flexi-lawyer providers, who people say are adapting their models anyway. But, as one GC pointed out, where an individual lawyer is working on contract for a single client, this could generate concerns for the client company.

Noises from the flexi-lawyer world are more upbeat. One head of a flexi-lawyer provider said the IR35 changes were welcome.

"It is the new way of working and the tax structure has to keep up with that", they said, adding that the changes to their model in preparation for IR35 had already been rolled out across live assignments — and that they had not lost any assignments as yet.

The person is not expecting a "substantial effect on pricing", as the market will quickly "rebalance" and "settle back into a similar place quickly and easily".

They did concede, however, that there was the potential for a "market misunderstanding" of IR35, which would bring challenges.

Was flexi-lawyering already under threat anyway?

A general counsel at a rail operator said all IR35 really meant was that their business would be "contemplating the environment it is already in", suggesting that the changes ushered in by IR35 will not impact their resourcing habits, as the cost is already lower than traditional legal services.

Still, for some GCs, the IR35 is just one of several potential threats arrayed against flexi-lawering, with one saying that providers have not been cost-effective for a long time.

The retailer general counsel suggests that all alternative legal service providers are "fighting an ongoing battle in terms of disruption", adding that while they were once a good way of getting a cheap lawyer, nowadays the cost of contracting a lawyer is always rising.

For many years, GCs have had a solid, cost-effective resource at their disposal: law firm secondees.

The rail operator GC said, irrespective of IR35 changes, secondees have consistently provided a price-competitive and sensible solution.

"I've got quality and certainty with law firms, so interim lawyers who are only slightly cheaper is not that impressive," they said.

The betting GC also points out that one reason that interim lawyers were initially price-competitive was because private practices and the Big Four were relatively slow to "leap on the bandwagon" of delivering interim legal support. However, they suggest that law firms are now cottoning on and benefiting from the changing market.

"Firms will continue to be prepared where they have overcapacity to send secondees out to clients."

The person highlights law firms which are already leveraging their talent and considerable tech investment to deliver flexible support in the guise of secondees, including Allen & Overy's Fuse and Eversheds Sutherland's Konexo.

With the introduction of IR35, clients are becoming that bit more astute over how to use interim lawyer services, and over whom to turn to for such talent.

"The game-changing stuff is long talked about but seldom happens," the rail operator GC says.

But IR35 is likely to change all that.