What you need to do

There is much to consider now that the IR35 rules apply to the Private Sector. Whilst it’s preferable to have solutions in place already, it actually isn’t too late.  Guidance published by HMRC in February confirmed that the tax authority would be lenient with employers for the first 12 months of the new off-payroll rules – including in cases where the wrong tax determination is made. This is in line with the ‘light-touch approach’ promised by Chancellor Rishi Sunak last year.

Therefore, if you are a recruitment agency placing candidates into private sector businesses you’ll need to work with your clients to understand the following…

Understand the size of the challenge. Audit your contractor workforce to find out how many personal service company (PSC) contractors you now have on assignment post 06 April 2021.

Decide on your approach to PSC contractors. Many businesses impacted by IR35 have embraced the changes and are actively providing status determinations for individual PSC contractors, others have banned the use of PSC’s altogether. Before banning the use of PSC’s think about your hiring strategy and how you will attract the necessary skill sets to new roles. Also consider the financial impact of rate increase requests, particularly for your key contractors.

Key terms

PSC –   Personal Service Company (AKA: Ltd Company)

IR35 – Tax legislation (AKA: ‘Off payroll’; & ‘Intermediaries legislation’)

Status Determination – A document shared down the supply chain declaring a contractor’s deemed employment status following an IR35 assessment/test

Manage independently or seek assistance. If you’ve decided to make status determinations for your PSC contractors you can either manage this in-house or look to an external provider. Providers such as IR35 shield offer a range of services for all parties in the chain.

Choose your tool. It’s important when you are making status determinations to show ‘reasonable care’. A good way to do this is to use HMRC’s CEST Tool or a third-party tool to help you evaluate whether a role falls inside or outside of IR35. We advise finding an assessment tool provider who provide insurance to cover any tax liability where HMRC successfully challenges your status determination.

Keep contractors and suppliers informed. Share status determinations with relevant parties but keep a close eye on key contractors whose status will change. Look at contingency plans for loss of talent due to changing status and consider rate increases where needed.

Create a process for challenges to status determinations. Contractors have the right to challenge your status determinations, and you need to respond within 45-days, or you’ll retain the tax liability. This is where reasonable care is important, as you’ll be able to show how/why you made the determinations you did. You should expect some challenges to status determinations and having a process for managing them will help.

Review your contracts. Have a different contract for inside-IR35 and outside-IR35 contractors. The clauses will need to reflect the working practices that led you to the status determination for each role.

Review your supply chain. While the latest changes transfer responsibility for status determinations to clients, so too your suppliers take on a more important role. You’ll need to work with partners that are financially stable, trusted and are sufficiently aware of their new role. Where your supply chain fails to satisfy any tax liability or fails to properly inform other members of the chain about your determination, the liability or debt can be transferred to you.

Get in the know. The IR35 assessment questions can be difficult to answer without contextual understanding. If you fail to manage contractors in line with your status determinations you could create additional risk for your business.

Minimise the impact. Inevitably there’ll be plenty of PSC contractors who decide to take on assignments that are inside IR35, as we saw in 2017 when IR35 was applied to the public sector. Look down the supply chain and consider alternative payment and compliance options that protect your business and provide a first rate experience for your key workers.

People Group Services work with recruitment agencies and end client businesses to minimise risk and help retain talent. Our payroll, compliance and technology services provide total transparency, efficiency savings and a smooth experience for all parties.

See also IR35 – How People Group can help’