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How to prepare for the changes to IR35

Posted-on January 2020 By Amy Bates

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​From April 2020, where an individual is working for a medium or large-sized business in the private sector and works through a company, the employer will be responsible for determining the individual’s employment status under the new IR35 rules.

The business or agency will therefore be responsible for deducting income tax and National Insurance contributions (NICs) via PAYE and will be required to pay employer NICs. 

Here's how your business can prepare

Review:

Look at your current workforce (including those engaged through agencies and other intermediaries) to identify those individuals who are supplying their services through personal service companies.

To help, you and your organisation you will need to conduct a review of all staff and contractors currently working within the business, and identify which are bound by the new rules.

When considering the status of an employee you will need to consider:

  • What are their responsibilities?

  • Who manages the individual (i.e. when, where and how do they work)?

  • How are they paid?

  • Are they in direct receipt of any benefits or expenses.?

You need to determine if the off-payroll rules apply for any contracts that will extend beyond 2020. ​​You can use HMRC's 'Check Employment Status for Tax' service to do this.

Consider contracts:

One of the main things to consider when deciding whether IR35 should be applied to a worker, is their independence from the business and if they are free to pursue other work outside of the company to which they have been hired for.

​This comes down to the amount of control that a business or recruitment agency has over the employee.  

Where it is clear that they can apply whatever control required such as hours, location etc. HM Revenue & Custom may assume that despite being seemingly self-employed via their own private service company (PSC) they are in fact an employee of the business, whether temporary or not.

If you want to keep the similar relationship with a contractor then you should review the existing contract they have in relation to their role and responsibilities to make sure they are adequately distanced from the business in order for them to be truly self-employed.

Work out the costs:

With so many workers likely to fall within the scope of IR35, it is important that employers take the time to consider the true cost to their business, as well as the additional payroll burden.

A review of the costs,especially the employer’s National Insurance Contributions, may show that it is no longer economically sustainable to have as many contractors or consultants working under the new rules.

Implement new recruitment procedures:

Put processes in place to determine if the off-payroll rules apply to future engagements. These might include who in your organisation should make a determination and how payments will be made to contractors within the off-payroll rules.

By being clear from the outset, those applying for a role should be able to understand whether or not they are likely to be effected by the IR35 rules and you as an employer can ensure that their payroll is conducted properly from day one. 

By managing necessary checks and putting the correct procedures in place now, most employers should be able to avoid any potential liabilities, whilst ensuring that the contractors that they work with are fully aware of how the change will affect them.

If you would like more information on the changes to IR35, and to discuss how you can prepare, please feel free to contact Sandra Hill on +44 161 448 8283