From April 2020 the responsibility for assessing IR35 status of Contractor assignments falls to the company which engages the Contractor (for medium to large sized organisations). In addition, the liability for Tax and National Insurance will be the responsibility of the fee payer if you get it wrong (that could be your company or the agency you engaged the contractor through, or both).
Private sector businesses are concerned that this will this reduce the pool of available talent and increase costs, admin and risk. However, could there also be an opportunity to mitigate risk, reduce costs and secure the best talent in the marketplace?
IR35 rules in the public sector
Since April 2017, many organisations in the public sector have adopted a blanket risk-averse approach by declaring all Contractors are within IR35 and therefore classed as Workers, not in business in their own right as a legitimate Limited Company. This means Contractors are paid on PAYE contracts with tax paid at the source or through an umbrella PAYE model. This has reduced the number of Contractors available for public sector work as these individuals shy away from Worker defined contracts at effectively lower pay. It is yet to be seen what the knock-on effects will be of declaring formerly independent Contractors as Workers in the future – if they are being taxed as a Worker and treated like a Worker, what employment Worker rights/benefits might be claimed in the future?
What we are hearing now, though, is what private sector businesses are worried about in terms of availability of suitable candidates and what this means to them from an increased administration and cost perspective.
Impact on the private sector
As has been the case in the public sector, private sector employees are concerned that less Contractors will put themselves forward for work on a Worker-defined basis. The best people in the industry will levitate towards those companies that can accommodate their genuine Limited Company status offering business-to-business contracts that fall outside IR35. If businesses can’t accommodate these working relationships, they risk losing talent. Those that can may be able to secure this talent at a discounted price as outside IR35 contracts will be an attractive option and probably not widely available.
If businesses define an independent Contractor as a Worker for Tax and National Insurance, then those Workers are likely to increase their rates to compensate for the additional costs they face in carrying out their roles as a Worker rather than a Limited Company.
Only time will tell, but one thing is certain – the responsibility falling on Employers/Companies to support HMRC in deciding who is inside or outside IR35 (Worker or legitimate independent Limited Company Contractor) will increase workload regardless of whether you adopt a blanket approach or assess individuals/assignments on a case-by-case basis. The Government’s own tool to support companies in making the correct decision (called CEST) has undergone significant testing and they are confident that companies using this tool will have their decisions upheld ….. with one cautious proviso: “providing the information has been entered correctly”!
What businesses need to do now without delay
Our advice is to make sure you have your processes in place for making well-informed decisions about IR35 status and documenting/recording these (using CEST or other in-house tools) well in advance of April 2020. Seek the support of your agency suppliers and, if possible, IR35 specialists and/or employment lawyers who can support you in the transition to this new way of engaging interim talent for your business.
Moving forward, if you want to secure the best interim talent in the marketplace whilst keeping costs for your business down you will need to engage with professionals to help you define how interim work is assigned and delivered for your business. If you do it correctly, it may be easier than you think to support genuinely independent contractors with assignments falling outside IR35, thus giving you a competitive edge in the contractor landscape of the future.
Feel free to get in touch with us here at Bond Williams for an informal discussion around FREE solutions for your business that could potentially mitigate business risk (with insurance backed guarantees) and also help you to secure the best talent in the interim marketplace from April 2020.
Robert Bond FIRP
Rob has a background in Sales and IT recruitment with over 25 years of experience in these sectors. He heads up the IT and Accountancy Divisions of Bond Williams and is also responsible for Bond Williams internal Operations and Finance. Alongside Claire, he is responsible for the overall growth and …