IR35 Isn’t The End For Your Flexible Workforce

2020-11-17| Clare Allan

As a leader in the UK financial services sector you’ll know that changes to the Intermediaries Regulation (IR35) are coming. After a welcome postponement earlier this year as we all grappled with the pandemic, the government is pressing ahead in April 2021.

What’s changing?

The IR35 legislation will make sure private sector contractors doing the same work as an equivalent employee, will pay the same tax and national insurance contributions. The responsibility for determining the IR35 status of a contractor will also shift.

Currently, it’s down to the contractor. But from April 2021 the onus will be on medium and large companies to determine the employment status of all their contractors. They will have to assess whether each role falls inside or outside IR35 and tell HMRC (small companies remain unaffected).

If a role is inside IR35 – it is no different to the role of an employee – employee PAYE and NI must be paid by the contractor, while employer’s NI and the apprenticeship levy must be paid by the company. If the role is outside the scope of IR35, the contractor can continue with the preferential tax arrangements they enjoy through their own limited companies.

How this will impact you?

As you can imagine, these changes aren’t welcomed by many.

For medium and large sized companies, their overheads will increase as they are forced to check statuses and cover employers’ costs. More importantly, there is the looming threat of HMRC fines and reputational damage if mistakes are made.

For professional services contractors (PSCs), being paid through PAYE is likely to reduce their take-home pay.

The value of flexibility

Despite this change you are likely to want to continue using flexible workers. They play a crucial role in many sectors because of the additional skills they provide, especially as coronavirus accelerates the shift to less conventional portfolio careers. In fact, in some financial services firms up to 40% of the workforce are contractors, for several good reasons:

• Without contractors many projects would be late, face penalty charges and risk reputational damage.

• Contractors, or teams of contractors, can be brought in quickly to perform one-off jobs or projects requiring specialist expertise.

• Contractors can be given very short notice, with no questions asked and no redundancy payments, which means scaling down after a project is easy and cost effective.

• Reducing a flexible team can prevent the need for wider redundancies.

Working with the new IR35

So how can you continue to use this flexible resource efficiently and without risking your company’s reputation? That’s where we come in.

We will assess whether your contractor falls inside or outside IR35 and take on the risk. Most commonly we sign a b2b contract with our clients which makes us the ‘end client’ for the purposes of IR35. Essentially, this means a contractor will work through us, protecting you from IR35.

Our rigorous IR35 process involves several steps that we manage:

• An initial client questionnaire to establish whether the role is likely to be inside or outside the scope of IR35. For example, what is the level of self-direction, could a substitute be used, what are the specific deliverables?

• A more in-depth questionnaire based on the government’s ‘check employment status for tax’ (CEST) criteria. We’ll repeat this at regular intervals and keep the results – if the result changes we’ll take the necessary action.

• The gathering of ongoing evidence from the contractor such as expense receipts and time records, which we keep.

• We also indemnify our clients against IR35 penalties to further minimise your risk.

If we decide a contractor does fall inside the scope of IR35 at any point, we have several options:

• We can pay individual contractors or their companies through PAYE.

• We can provide contractors to you on a fixed term contract basis.

• We can supply contractors through an umbrella company.

This means, even after the change to IR35, you can continue to enjoy the many benefits of a flexible workforce.

If you’re worried about the impact of IR35 legislation on your business, get in touch for a chat about how we can help.