Despite widespread resistance from the business community, in April 2020, the government will press ahead with its reforms to off-payroll working in the private sector (IR35).
Despite widespread resistance from the business community, in April 2020, the government will press ahead with its reforms to off-payroll working in the private sector (IR35). While there have been many criticisms of the roll-out – namely that it could impact availability of flexible talent - it’s crucial that businesses understand how to practically operate within these new rules.
With a recent poll conducted by the Association of Professional Staffing Companies (APSCo) suggesting only 12% of its membership believed the majority of their clients had started preparing for changes, it’s clear that there is still a lot of work to be done. So, here’s what you need to know.
IR35 in a nutshell
IR35 legislation has been around since 2000 – with the aim of removing tax advantages for workers that provide services via limited companies despite performing roles akin to traditional employees. These workers are described as ‘disguised employees.’
In April 2017, new rules were implemented for contractors in the public sector. Instead of being responsible for determining their own IR35 status, the obligation was handed to the ‘engager’ of each worker.
When a contractor is deemed to be inside IR35, the fee-payer must deduct employees’ NICs and income tax from their pay, as well as paying employers’ NICs. The 2020 roll-out is simply an extension of this system into the private sector.
Review, review, review
To prepare for the changes in the private sector, businesses will have to conduct reviews of a number of internal processes. The first step should be a thorough analysis of staff and contractors to identify which ones may be affected by the new rules.
To make this easier, businesses will be able to use the freely available Check Employment Status for Tax (CEST) service, to determine whether off-payroll working rules apply to an individual. Companies will also need to make sure that they have suitable payroll systems to handle the increased volume of invoices, and work out whether tax and NICs apply.
Consistent decision making process
Consistent and clear decision making processes will also be needed to avoid subjectivity from hiring managers. To ensure administration is as simple and effective as possible, every business will need a person, or several people, responsible for assessing the employment status of individual contractors and how payments will be made to them.
Under the new rules, businesses will also be obliged to have a dispute resolution procedure in place which meets criteria set by Government, to allow for determinations to be challenged and for contractors to clarify their status.
Recruitment suppliers and process
It is also vital that companies review existing and future recruitment providers to ensure they are using IR35-compliant models. Along with this, businesses should consider whether their recruitment process leaves any ambiguity that could lead to them falling foul of regulations.
For instance, job adverts should make it explicitly clear whether a role is for a contracted period of work conducted by a self-employed individual or whether it is intended as a more permanent internal role as a consultant or contractor.
Another important thing businesses should consider is that contractors are consistently engaged throughout the preparation process. While there may understandably be some level of confusion from all parties with regards to IR35, you can mitigate this by making sure these workers are aware of all the steps you are taking to prepare for the legislation change. By doing this, businesses will be able to retain positive relationships with their contingent workforce. No value will be gained from keeping contractors in the dark.
Take action as early as possible
By taking concerted action now, and preparing for the updated regulations – companies give themselves the best chance of adapting to the new landscape. Whether this is done through a steering group, or completely in-house, as long as contingent workers and recruitment partners are thoroughly analysed and kept informed– companies will be putting their best foot forward.
Recruitment firms must quite simply take action now. Leaving it too long will vastly increase your chances of breaching legislation. Apart from putting you at risk of potential fines, this will also do huge damage to your employer brand, and could seriously impact bottom line. However, by taking the steps above – you can rest easy that – whatever the fallout from IR35 is – you’ll be prepared to meet the challenge.