Changes to IR35 legislation were due to be implemented in April 2020 but due to the Coronavirus pandemic, the Government announced in March 2020 that the IR35 reform was being delayed by a year until April 2021 to allow for a focus on business survival rather than increasing the compliance load at a time of uncertainty.
The 12-month delay gave companies the opportunity to prepare further, but if you are honest, are you really ready?
What is IR35?
IR35, also known as ‘off-payroll working’, was introduced in April 2000 to tackle tax evasion by contractors, agency workers and the companies who use them.
IR35 ensures that workers who would have been an employee if they were providing their services directly to the client, pay the correct tax and national insurance contributions just like a permanent employee would.
IR35 or ‘Off- Payroll’ working applies to:
● Self-employed workers who provide their services through their intermediary (such as a limited company)
● Clients who receive services from a worker through their intermediary
● Agencies who provide workers’ services through their intermediary
What changes are coming in April 2021?
● The responsibility for determining an employment status of a worker will shift to the end hirer
● IR35 working rules apply if services are provided to a client through an intermediary- i.e. recruitment agencies
● If the rules apply and a contractor is deemed to be inside IR35, tax and National Insurance contributions must be deducted by the entity paying the company and paid directly to HMRC
● The new rules apply to ‘medium or large’ sized ‘end client’ businesses in the private sector and all organisations in the public sector but does not apply to companies with less than £10.2 million in turnover, no more than 50 employees and no more than £5.1 million in Balance sheet totals
● The removal of the 5% allowance for PSCs to meet the costs of administering the off-payroll working rules
What happens if you get it wrong?
Failing to be ready for the changes can lead to substantial costly fines and lengthy processes and reputational damage. If businesses get it wrong, they might be at financial risk, as HMRC might instigate investigations and if they see any irregularities or lack of payments, it’s highly likely they will demand that the workers National Insurance Contributions (NIC’s), that haven’t been deducted, along with potentially a large penalty and interest for late payment, is owed.
As an example, the minimum a business could expect to be liable for, in respect of Employer’s NIC’s alone, for a contractor paid an hourly rate of £40 per hour on a 12 month engagement is around £10,000, per contractor.
How can you prepare?
If your business is likely to be affected by the IR35 changes coming in April 2021, you can take some steps now to ensure you are compliant:
1.Understand and decide the employment status of your workers
2. Review contracts you already have
3. Communicate with your contractors and hiring managers to ensure you all understand the rules
4. Make sure you budget and are prepared for price increases
5. Implement new recruitment procedures and ensure you communicate with your agency suppliers
6.Set up a new payroll system
7. Have a grievance procedure to ensure you deal with disagreements arising from the new changes with your contractors and supplier agencies
Are you ready?
We are fast approaching the end of the year so it is important that you ask yourself if you are ready for the changes ahead.
Datum RPO can ensure you comply with all the IR35 changes. If you have a large contingent workforce and use multiple agencies, then a Recruitment Process Outsourcing (RPO) specialist can provide processes/ procedures and reporting via a technology platform that offers a complete holistic view of your organisations spend and agency performance.
In essence, making a complex situation easy and having the best possible experience, consistent with your own brand values. An RPO company will also be able to deliver many more benefits which include:
● Online management of the entire recruitment process from order to invoice that deliver real-time management information and reporting across your entire business.
● Measurement of agencies through tailored Service Level Agreements, quarterly reviews and feedback, and benchmark their performance against the entire supply chain.
● Systems to manage rights to work in the UK and tenure in line with Agency Workers Regulations. Including auditing agencies and agency worker records every six months.
● Direct cost savings of between 6% and 12%, by standardising pay rates and margins and stopping overcharging on Employers National Insurance and Holiday Pay.
● Minimising changes in the supply chain, the majority of existing suppliers will be retained, taking into account process, financial stability, geographic capability and legal compliance.
● Standardise engagement experience to ensure agency workers view your business in a positive light, and have the best possible experience, consistent with your own brand values.
By partnering with a technology driven RPO company, organisations have real time visibility and control which provide the foundation for effective management of a contingent workforce. Recruitment Process Outsourcing has emerged as a major new business service that helps organisations increase earnings per share, protect operating profit and free up more money to reinvest in the company, its technologies and growth. New technologies and RPO services now make spend and agency management simple across an entire organisation — not just a single cost centre.
Contact us: If you’d like to know more on how Datum RPO can provide visibility and control to your labour spend, feel free to contact me on the details below: M: 07872 870996 E: Jarrod.Mollison@datumrpo.com