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IR35 – are you ready, or have you left it too late?

Last year, the Government postponed implementing the IR35 reforms in the face of the COVID-19 pandemic. This was a deferral, not a cancellation, and the Government is now committed to reintroducing these reforms from April 2021, ensuring people working like employees but through their own limited company pay the same tax as those employed directly. A further deferral is therefore highly unlikely.

In our article in the November 2020 issue of Global Recruiter, FCSA board members Matt Fryer of Brookson and Tim Hunt of Crest Plus (part of the JSA Group) provided agencies with a comprehensive six-month action plan to put you on the right track in readiness for the off-payroll reforms.

Now with less than three months to go, has your agency done everything it needs to be ready and in a good position to capitalise on the changes?

If the answer is no, in this article, FCSA will help you to understand what this will mean for your agency, explaining what the impact will be on your profitability and cash flow, the options you can offer contractors now considered inside IR35, and how best to attract candidates within IR35.

The best starting point is to refer to our previous article. If you have done all of this, you should be ready and be in a good position to capitalise on the impending changes.

To summarise at this stage, you should understand:

  • How to assist your clients in assessing status using reasonable care
  • What the impact will be on your profitability and cash flows
  • What options you can offer contractors where they are considered inside IR35
  • How best to attract candidates considered within IR35

Once the above have been understood and completed, you need to develop your processes and then embed them into your ‘business as usual’ ways of working. 

Remember, you can still continue to help your end hirers to reduce the number of contractors and freelancers captured under the IR35 reforms by making changes to contractual documents and changes to working practices where they are unhelpful in maintaining genuine outside of IR35 working. 

This needs to be continually considered with both ongoing and potential new clients.

Continued client education is still key in managing this going forward and gives you a chance to get even closer to your potential new clients.

Remember, your clients will need to re-assess roles if and when those roles change, even if it is the same contractor continuing to work for them. You will need to ensure you have a process for capturing any such role changes and then re-assessing the new role or asking your client to re-assess the role.

As there will be financial risks associated with wrong assessments, be prepared to challenge any determinations you feel may not be robust. For example, if you feel that reasonable care has not been used when arriving at the status decision. 

Consider an audit process where internal determination decisions and those provided to you by your clients can be re-looked at objectively with a fresh pair of eyes.

Keep an eye out for any new legislation or case law as this may result in changes being required to determination tools, and consequentially re-assessments could be needed for your existing previously assessed workers, both those inside and those outside IR35. 

Also, keep an eye out for what your key competitors are doing. Having something to compare your own processes to can be very helpful in times of change. 

If you or your clients haven’t used the extra time to prepare since the postponement in 2020, you still have time to do this properly, but you will need to start now. 

Before April 2020, HMRC indicated the potential of a “soft landing” where fines and penalties may be waived in certain circumstances. HMRC has indicated that they would still be making good on their previous intention of a grace period from 6th April 2021. But what does this mean?

Firstly HMRC has indicated to workers that their intermediary entity will not be subject to new compliance checks for tax years prior to April 2021 on the back of new information unless HMRC has reason to suspect fraud or criminal behaviour. HMRC also intends to take a light-touch approach in the first twelve months following 5th April 2021, meaning businesses may not have to pay penalties for inaccuracies relating to the new IR35 rules unless there is evidence of deliberate non-compliance.

This may help give businesses the confidence to take a little extra time to get things right if needed rather than cut corners late in the day to meet the deadline. Of course, the best scenario we strongly advise is preparing well now and being ready on time.

When similar IR35 reform legislation was introduced in the public sector in 2017, many organisations “blanket banned” outside IR35 contracting options so as not to have to make what was perceived to be risky outside IR35 determination assessments. This was widely challenged at the time and so is expected to be much less common as we approach 2021 reforms in the private sector. Some end hirers have since become more subtle in protecting themselves from the perceived tax risk by offering only PAYE roles instead of blanket banning outside IR35 roles; however, the commercial implications have yet to be borne out.

To comply with their obligations, administration time and costs for hirers will also increase. Therefore, many hirers will understandably seek ways not to make any determination at all and are already being seen to take cautious approaches to hiring by offering roles as fixed-term employment or “inside IR35”. 

The downside of any form of blanket ban approach from the hirer or agency is that they may not be competitive when looking to hire contractors, or the cost of the contractor may become much higher and prohibitive, especially where the worker can find other roles outside IR35 for the same or better rates of pay.

Blanket bans will, for many, be “false employment.” However, in practice in the current climate, as we exit COVID-19 and nationwide lockdowns economic consequences, many contractors may be happier to accept less than ideal terms and of pay when work could be hard to come by. The laws of supply and demand will, in the end, determine which roles will attract higher pay rates and which will result in contractors taking a hit on their usual take-home payments.

Hirers are taking more of an interest in the supply chain due to the increased risks to them, so it is advisable to undertake your own credit checks on your suppliers to ensure you have a robust, financially sound supply chain behind your own business and a credible picture to present to your hirers.

Be very wary indeed about the rise of opportunists in the market, whether that be inexperienced IR35 reviewers, umbrella companies with inadequate experience or lack of financial robustness, new models designed merely to enhance take-home pay, Statement of Works models that don’t accurately reflect genuine working practices, or other models already being investigated by HMRC e.g., loan schemes.

Remember, FCSA Accredited Members have been independently audited against a strict code of compliance on an annual basis, and our members are prepared, ready, and willing to help your agency.

This article was written for Global Recruiter Magazine and published in its January 2021 issue.

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