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Making use of new payments regulation: how to grow with IR35

Written by former FCSA Business Partner, Modulr.

Now the changes to IR35 have come into force, it’s safe to say that life has got more complicated. One clear area where we see complexity is in the handling of payments. Although it is not normally the main focus for any business, employment agencies and others that have a large volume of payroll payments to consider could encounter new headaches with IR35 . ‘One size fits all’ payment services may no longer be able to keep up with all this complexity, but there is opportunity for FCSA members to keep their payments under control due to new functionality and services available in the payments industry.

New responsibilities with IR35

Designed to tighten up the interpretation of employee status, the new IR35 rules shift the responsibility for deciding whether it applies from the contractor to the employer.

In many cases, agencies may have insufficient information about working practices to make a correct judgement and will need to ask the client to give an opinion on IR35 status. If an agency concludes that IR35 does not apply, but HMRC subsequently judges that that it should, the agency is ultimately liable for the underpaid tax.

Where better payments add value

Where contractors are placed through agencies and deemed to fall within IR35, the agency will see new responsibilities, including administrative overheads and additional complex liabilities.

More contractors will need to be paid through PAYE, with the tax, National Insurance and VAT paid, collected and processed on their behalf.

Additional changes to the flat rate VAT scheme, the application of the Apprenticeship levy, and new gender pay gap reporting requirements will also impact on payroll processing, contracts, due diligence and audit processes for employment businesses.

The result? Agencies may well find themselves processing far more complex payments – likely resulting in greater administration and compliance costs.

Fortunately, regulatory shifts in the payments space (including PSD2 and the Open Banking Initiative), are generating significant opportunities for employment agencies struggling to navigate their own regulatory environment.

Agencies can benefit from faster payments, immediate reporting, better compliance, simpler processes and reduced costs. Above all, new regulation means that payments have the potential to become a whole lot easier.  Batch files, manual processes, laborious reconciliations can all be confined to the history books, replaced by seamless automation that gives agencies unprecedented control over their payments.

The result is better customer service and a flexible business able to compete more effectively in the face of the wider challenges that lie ahead for professional employment services in the UK. To find out more about simplifying complex payments in recruitment, contact Modulr’s experts today on

Myles Stephenson, Chief Executive, Modulr