Rebekah Valero-Lee ir35
With mere weeks to go until the new IR35 rules come into play for the private sector, companies are ramping up their efforts to consult with their contractors.
This seismic shift in tax legislation will affect the ways in which companies attract and retain talent, as well as making changes to supply chain relationships and business operations. The number of businesses using agency and contract workers has increased 40 per cent in the last 10 years, and for those who rely on them to deliver the majority of their labour, it might be tempting to implement a blanket, one-size-fits-all approach to quickly and efficiently side-track the complexities that IR35 presents.
However, legislation dictates that any private sector business using contractors must take ‘reasonable care’ throughout this process, and those found not doing so are at risk of major repercussions – from both HMRC and their contractor workforce.
What the workforce are saying
IR35 is putting a lot of power in contractors’ hands. Recent surveys have highlighted that, moving forwards, half of all contractors (50%) will only take contracts that are outside IR35, while our own research has indicated that 40 per cent of contractors who find themselves inside of IR35 will work to negotiate an increase in pay to balance the impact on their income brought about by moving to PAYE.
During the 2017 public sector roll out, those who adopted blanket assessments – deeming entire contractor populations as inside IR35 – lost a proportion of their contractor workforce to competitors. Any blanket approach in the private sector could have the same effect, either in the short term, long term, or both. After all, once IR35 comes into play, contractors need only compare two potential clients and what they will do to ensure they can work outside of IR35, before choosing the best option as their next role.
A shake up in how contractors are engaged, without due care and attention to each contractors’ circumstances, current and previous working conditions and levels of responsibility, will make them feel undervalued. As such, they’re more likely to seek alternative roles, causing serious repercussions for the UK labour market and businesses already tackling labour skills shortages.
What HMRC is saying
Currently, contractors engaged via a PSC (personal service company) and operating in the private sector can determine their own IR35 status. From April 2020, this responsibility shifts to the end client. Even businesses that use intermediaries and fee payers, such as Morson International, are accountable for conducting these reviews and must ultimately make the decisions as to whether individuals fall inside or outside of IR35.
HMRC has issued a warning that businesses must demonstrate ‘reasonable care’ throughout the implementation of IR35, insisting that every private sector company produces a status determination summary (SDS) that outlines the case-by-case reasons to deem that individual as inside or outside. For companies with extensive contractual chains, there is a responsibility for SDS’ to be passed to every supplier.
Any client found not to have adopted reasonable care risks the IR35 determination becoming worthless, meaning those found to be ‘blanketing’ could be increasing their chances of a penalty from HMRC.
It is also worth noting that those who do move contractors to PAYE will have to consider the regulatory changes that brings; for example, the Agency Workers Regulations outlines processes on worker equality, pay, hours and holidays.
Final legislation and guidelines on IR35 will be introduced mid-March – eye wateringly close to the IR35 implementation date in April, meaning businesses have very little time to prepare. As such, many are calling for a further review of IR35. But one thing is certain – it is coming and is set to cause a shakeup.
Whether you are a contractor or end client, Morson are here to support you through the legislative changes, contact us at IR35@morson.com to contact our expert IR35 team.