IR35 Legislation: Prepare for the Changes

Although you may be aware of IR35 Legislation imposed by HMRC, you may not realise that the way it is imposed on the public sector is to be extended and will now apply to the private sector too.

This is likely to have a significant impact on the way that agencies consult with contractors.

Coming into force from April 2020, every agency and sub-contractor using contract workers or a Personal Services Company (PSC) will take responsibility for the correct classification in determining off-payroll working, and in particular PAYE and National Insurance contributions.

It has, until now, been up to the individual contractor to manage their tax liabilities, however using the Check for Employment Status (CEST) tool an IR35 status determination will be provided which will pass this responsibility up the supply chain to the organisation commissioning the work.

Contractors will still sit inside or outside of the IR35 criteria and so for some things won’t change, however for many there are likely to be implications including the need to pay higher rates of tax at source, which will result in a reduced take home pay.

It is the responsibility of every organisation using contractors to provide them with an IR35 status determination, not the other way around. This will obviously mean that companies are going to have increased levels of administration, but it could also reduce tax risk.

While these changes are likely to apply to those in low-skilled or more junior roles that require training and guidance, this is not exclusive, and one size does not fit all when it comes to the enforcement of this legislation.

The processes and procedures that are put into place must make provision for every candidate that is contracted to be reviewed. We have set out a ten-point plan that we feel is a good starting point for companies that use contractors.

  1. Review all projects and the contractors that are commissioned to work on them
  2. Identify the skills and talents that are required for each
  3. Understand the criteria that will determine the status of a contractor
  4. Identify what changes need to be made to enforce better working practices
  5. Implement the new practices, taking a phased approach to limit disruption
  6. Communicate changes to contractors and customers
  7. Be clear about pricing structures and what costs may be incurred where  
  8. Provide clear guidance regarding new ways of working to your employees
  9. Be prepared to answer complex questions about IR35 and its implications
  10. Review the robustness of the model you have put into practice

Offering additional support to our network, we will be holding dedicated sessions about IR35 Legislation and would urge anyone that would like to know more to contact Martyn Papworth, Delivery Director at Hortor, on tel. 07592 502644. We will also be sharing our advice and best practice on LinkedIn and Twitter over the coming months.