IR35: the major legislation change your business needs to be prepared for in 2020
It's the start of the new year and the one thing that should be the priority for every private sector organisation who engages contractors, is IR35.
In just 4 months (92 days), IR35 will come into effect in the private sector, directly impacting all companies who engage contract workers. These changes will affect a large part of the private sector as the new legislation requires companies, not contractors or agencies, to deﬁne the IR35 status of their contractors.
Businesses must assess each role individually or risk being in breach of ‘reasonable care’ imposed by the new rules. The potential financial penalties can be significant if incorrect steps are implemented.
Phil Beardwood, compliance & assurance director at Morson, said:
“Some businesses believe that it’s the responsibility of the labour provider to determine the status of their contractor workforce, yet it’s down to the end client to conduct these reviews and ultimately make this decision, which may provide the answer as to why some contractors aren’t yet aware of the forthcoming changes.
“Conservative promises in the General Election have led to some organisations believing that the forthcoming IR35 legislation reform will be delayed or even cancelled.
“This is certainly not the case and at the moment the new tax regime governing contractors remains top of the agenda in the private sector. The countdown to comply is on, with those companies who choose to bury their head in the sand posing major risk to their operations.”
“We strongly recommend that end clients do not simply adopt a blanket approach as a quick fix to reducing their tax risk. Lessons learned from the public sector rollout means that those who do try to cut corners risk losing contractors to a competitor who may correctly deem the same individuals to be outside of IR35. Pay rates could also increase considerably from those deemed as unnecessarily inside and transferred under PAYE, as end clients try to retain these in demand skillsets."
This is where we can help. Morson, alongside our IR35 expert partners, are on hand to support companies who use contract resource to introduce robust process to ensure compliance or risk financial, legal and reputational damage. Contact us at IR35@morson.com to find out how Morson can help your business navigate IR35.
What is IR35?
IR35 was introduced with the intention of ensuring that individuals operating via a personal service company (PSC), were paying the correct levels of income tax and national insurance, relative to their employment status.
The basis of the legislation is to assess the nature of the direct relationship between the end client and worker (effectively removing any intermediaries).
Where an assignment is deemed ‘inside’ IR35, PAYE deductions have to be made from the contractor’s pay. Any assignment ‘outside’ IR35 is classed as a genuine contractor and is not subject to the same taxation as employees.
Morson, alongside our specialist IR35 partners, Weightmans LLP and Champion Contractors, are experts in this legislation and are on hand to offer practical advice, tools and guidance to ensure you are prepared and compliant by April 2020.
You have only 4 months to become compliant
With only 4 months to go you should have started your preparations in 2019 and should now be well on the way to ensuring compliance. We’ve prepared a countdown calendar, so you can see what you should be considering and when to prepare for the upcoming changes to IR35 legislation.
- 6th April 2020 – IR35 reforms go live
- FEB - APR 2020
- Assess new roles for IR35 and undertake training for internal staff on updated processes.
- OCT 2019 – FEB 2020
- Apply an employment status test to all PSC contractors that is relevant and ﬁt for purpose.
- Communicate and liaise with contractors to ensure they are aware of the new rules.
- July – Sept 2019
- Agree IR35 testing solution and conduct a high level assessment.
- Establish how each contractor is being paid.
- Review how the contractual workforce is supplied.
- April – August 2019
- Organisations should start a full review of their contractual workforce and the work performed/required.
If you’ve missed a stage or are behind in your preparations, we can offer advice and solutions to help mitigate risk at all stages up until and beyond April 2020. Contact IR35@morson.com for more information.
Don’t prepare and face putting your business at risk
Failure to comply with the IR35 reforms could leave your business open to extra expense and exposed to risk. Contact IR35@morson.com to ﬁnd out how we can help you mitigate financial risk and reputational damage.
If HMRC ﬁnds contractors to have incorrect determinations then the end client will face potential tax / National Insurance losses.
For example: For a contractor on £100k the tax / National Insurance would be circa £20k. Therefore, for a contractor on a salary of £100k who is found to have been incorrectly determined, the end client would face a bill of £80k plus interest and penalties/ﬁnes over 4 years.
Potential end client bill per contractor = 20% (of total salary) + interest + ﬁnes x 4
End clients could be left open to financial risk if their contractors are found to be incorrectly determined. As you, the end client, will be responsible for determining whether a contractor is ‘inside’ or ‘outside’ scope you must ensure you are making correct assessments.
Find out how Morson can help with the assessment process contact IR35@morson.com
Legal, reputational and operational risk
Outside of financial risk, operational, legal and reputational damage can arise if businesses do not prepare for change appropriately or early enough. Delay to projects due to loss of resource, litigation with HMRC and a restriction to the ﬂow of contract talent are all risks that may arise if you do not prepare early or well enough.
Work with Morson
Collectively and individually our team has a wealth of experience in dealing with IR35 matters across the public and private sector.
Our specialist team
To support you in the lead up to (and following) the April 2020 off-payroll changes, Morson has exclusive partnerships with specialist contractor services company, Champion Contractors, and Top 40 UK law ﬁrm, Weightmans LLP, both of whom have significant experience in helping businesses navigate the changes to how IR35 is applied in the public and private sector.
50 years of experience
Morson have been in the contract recruitment market for over 50 years. During that time we have seen and dealt with many challenges faced by the industry. Therefore we have a unique insight into the workforce challenges faced by our clients and can shape the most effective IR35 strategies.
Our 5 step process, including initial audit and individual assessment, is designed specifically to help end client organisations make IR35 determinations. Implemented with our partners, the process drills down on key IR35 factors. If correctly implemented, this process will provide accurate determinations and allow you to compliantly support and retain your contractor workforce before and after April 2020.
WIth a network of over 1 million contractors we are able to gain unique insights about contractor behaviour and industry trends. Our surveys provide deep market insight, invaluable to clients needing to understand the market when making determinations. Download our latest IR35 contractor report at https://ir35.morson.com/IR35-contractor-report.
Public sector experience
Both Morson and our partners have extensive experience in supporting organisations in the public sector through IR35 changes brought in, in 2017. This has given us an excellent understanding of how to manage the changes effectively which we can now apply to assist private sector organisations.