How Businesses Can Navigate the New IR35 Rules
Written by Wis Amarasinghe - Finance Director at Langley Search & Interim
Big changes are on the way relating to the tax and working arrangements of off-payroll workers in private sector, with the scope to have a significant impact on the way in which recruitment agencies, end clients and contractors work together. Let’s take a closer look at what the changes relating to the IR35 regulations are and how businesses can plan ahead to mitigate their impact.
How are the Current Rules Relating to IR35 Changing?
As it currently stands, the onus is on the self-employed worker to determine his or her IR35 status or tax liability and arrange appropriate tax payments accordingly. However, HMRC’s planned change in 2020 intends to move this liability to the “fee payer” which is usually the recruitment agency that works with both the contractor and the end client. Naturally, this change has the potential to lead to a large-scale shift in the balance of accountability for tax arrangements between the parties, with recruiters becoming increasingly responsible for understanding the IR35 regulations and working in partnership with contractors and clients to implement them correctly or face heavy fines from HMRC.
Changes were introduced across the public sector to IR35 status back in 2017 and HMRC plan to roll this out across medium sized and large private sector organisations on the 6th April 2020. For now, small companies will be unaffected by the changes, meaning that it will continue to be contractors’ responsibility to determine their personal IR35 status.
How Significant are the Changes Set to Be?
For many larger organisations and recruitment agencies, however, the changes that are planned to come into force next April are set to have an immediate impact on their business operations and forward planning is therefore their best line of defence to manage the effects. Analysing the public sector’s response in 2017 highlights interesting areas to consider. For example, a common reaction was to adopt a uniform approach to the new regulations and consider all contractors to be working within IR35 in order to protect the recruiter and organisation from the consequences of making incorrect IR35 judgements. However, this had the undesired effect of leaving contractors to pay tax at higher rates, similar to those of employees, without any corresponding employment rights, offering them little incentive to continue to work with the organisation.
HMRC have since warned against making such blanket decisions, calling upon organisations and recruiters to make reasoned individual judgements on a case by case basis to determine their workers’ IR35 status accurately and fairly.
Let’s Plan Ahead
Time is of the essence for recruiters and end clients that currently rely on non-core, off payroll workers to plug gaps in their workforce, to prepare for the IR35 changes due next year. Best practice shows that it’s certainly worth taking time to evaluate your existing processes relating to working with contractors to gauge your exposure to the new regulations. At Langley, we are fully prepared and to advise all our clients and interims. Please do not hesitate to contact us if you need any further clarifications around this.