Recap – what is IR35 and what’s changing?
IR35 is a tax law which was introduced to tackle the problem of “disguised employment”, that is, where organisations engage off-payroll contractors on a self-employed basis, rather than on an employment contract, so they essentially become disguised employees.
From 1 April 2021 private sector organisations will have a statutory obligation to assess the deemed employment status of all contractors engaged through an intermediary and, if the result of that assessment is that they are deemed employees, they will need to operate PAYE (income tax and NICs) on any remuneration payable to the contractor for its services. They will also need to issue a status determination statement to the contractor setting out the conclusions of that assessment.
For more complex arrangements involving a supply chain, each party in the supply chain will have an obligation to pass on the determination and other information to parties further down the chain. All such communications must take place at, or before, the time of the first payment under the contract after 1 April 2021.
Public sector organisations have been required to make these assessments since April 2017, although there are some changes to the rules they have to comply with as well.
These changes were originally due to come into effect on 1 April 2020 but were delayed due to the coronavirus crisis. There had been speculation that they may be further delayed, but HM Revenue and Customs has recently confirmed that the changes are indeed on track to take effect on 1 April 2021 after all.
The impact will be huge for those who are affected – this will be the biggest disruptor we have seen within UK private sector contracting for 20 years.
If you hold a leadership role in finance or HR within any business which engages independent contractors from time to time and has an annual turnover in excess of £10m and a workforce of 50 or more employees – it is essential you take note.
Do these changes apply to small companies?
Companies which satisfy two or more of the following requirements will be deemed to be “small” and outside the scope:
- annual turnover of not more than 10.2 million
- balance sheet total of not more than 5.1 million
- number of employees of not more than 50
However, even small businesses may need to give warranties or other protections if they are providing staff to another business which does fall within scope.
What should I do now?
With around five months until the new rules come into effect, there is plenty of time to prepare.
We would recommend the following steps:
- Understand if your business is in scope or exempt of the reforms duties based on your headcount, revenue and balance sheet value.
- Understand your worker population and how many workers you have across your organisation (don’t forget about those who slip in the back door via procurement)!
- Understand if you are the end-user or if you have a client who would be assumed to take that role.
- Understand your duties and those of your clients.
- Agree which assessment tool you will use to determine status.
- Assess your workers to determine if they are in or out of scope of the reforms due to be implemented on 6 April 2020 (where appropriate these should be conducted in partnership with any client if they are deemed to be the end user)
- Understand from the assessment outcome if the reasons for the worker being deemed to have the off payroll rules applied, is due to the way in which the company (or end user) is ‘managing’ the worker. If this is the case, amend working processes and reassess.
- If no changes to working practices can change the outcome and the individual is clearly an employee subject to the off-payroll rules, consider the flexible employee based packages that the company will offer to make the transition to employee status more attractive – offering ‘staff’ fixed remuneration packages may not be enough!.
- Where required, prepare for contingency recruitment for any workers who may opt to leave the business post a determination of employee status post assessment.
Furthermore, you may also wish to appoint key stakeholders, one from each business unit, to assist with agreeing the policy for contractors going forward.
Even if you completed a full assessment of your workforce in time for the April 2020 deadline, it is still wise to check whether any new contractors have been engaged since then or whether the deemed employment status of any existing contractors has changed.
We have interim HR consultants who are specially trained in IR35 who can help you, so if you require assistance with what may seem like a mammoth project; please do get in touch with us today.
Email our founder Dean Hunter (dean.hunter@hunteradams.co.uk) or contact one of our regional offices.
