Are you prepared for IR35 in the Private Sector?
As many of you are aware HMRC are introducing changes to the IR35 guidelines in the Private sector to match the current legislation in the Public sector. As of April 2020, the responsibility of status determination is shifting from the contractor to the employer. Essentially the end user benefiting from the consultant’s service will be liable for determining whether the contractor is Inside or Outside of IR35 guidelines. With the end user also being liable to pay any penalties associated with incorrect determination it is essential that employers prepare for the IR35 reform.
Here are our top tips to prepare for the IR35 reform.
Knowledge is Power.
The first step in preparing for the changes in IR35 is understanding your current workforce. Therefore, it is essential that you conduct a full review of all staff and contractors currently working in the business.
This exercise will allow you to understand the level of impact the changes will have on your workforce. HMRC have issued a Check Employment Status for Tax tool (CEST) which can be used to help assess whether off payroll working rules apply. This tool has been updated but is still highly criticised, however they have clarified that the tool will be used to support any status determination if an assignment were to be investigated. We would recommend that you also undertake an independent status review to ensure correct determination.
Sign the dotted line.
A key player in IR35 status determination is Supervision, Direction, Control (SDC), underpinning this is the reality of whether the worker is independent of the business and free to pursue other work outside the company by which they have been hired. Additionally, things like specific working hours, location of work and being managed by an employee are all factors which will affect status determination. Many of these items will be specified in the contract of work and should you wish to continue engagement with specific contractors their current contract and roles and responsibilities will need to be reviewed to ensure that they are truly operating as Private Service Company (PSC).
Understand the cost impacts.
Potentially some contractors that currently sit outside the scope of IR35 will now sit inside the scope of IR35 once the reform takes place in April 2020. It is essential that employers understand the cost impact of the change to both the worker and the company. The company will need to understand the impact of additional National Insurance Liabilities it may have and the economic impact this may have on the company. This cost impact needs to be assessed prior to April 2020 to ensure that the company can sustain the cost of its current and planned workforce.
The blanket rule.
Many companies have taken the blanket approach to IR35 determination to avoid any risk of penalty charges, however this approach can have serious knock on effects to its workforce. Applying this blanket approach could result in the incorrect determination of certain workers that truly sit outside the IR35 guidelines. This could lead to potential litigation against the company if a worker feels that being determined inside IR35 results in them no longer being able to work for that company. In addition to this, contractors will expect a fair determination of assignment and a blanket rule will limit the talent willing to work for the company.
It is fundamental that employers are clear from the outset with regards to the status of an assignment. Any job specs issued should make it clear if the worker will be contracted as a self-employed worker or treated as an employee. When engaging with recruitment agencies you must clearly identify the status of the assignment, this will allow the agency to find you suitable candidates and generate efficiencies in the recruitment process.
It is extremely important that employers prepare for the IR35 reform NOW, this will allow you to put procedures in place to avoid any potential liabilities come April 2020. Furthermore, it will allow you to communicate the changes and impacts to your current work force, this is a crucial element to ensure that you support your current workforce through the changes and remain a professional employer.
Please get in contact with your account director or email@example.com to discuss the solutions/templates we have available and how we can support your business through the IR35 reform.