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IR35 - How You and Your Business Can Prepare

Posted-on February 2020 By Amy Bates

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From 6 April 2020 onwards, any individual who works for medium or large enterprises in the private sector and works through a company will be responsible for determining the individual's employment status under the new IR35 rules. Therefore, the company or agency will be responsible for deducting tax on income and National Insurance Contributions (NICs) through PAYE and will be required to pay employer NICs.

​So how can you and your business prepare?

Review:
  • Firstly, you need to make sure that the people who are making the decision when looking at your current workforce to determine how IR35 applies to them, are fully trained and qualified, and understand the rules thoroughly.

  • You need to determine whether 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.

  • Your current workforce (including those engaged through agencies and other intermediaries) will need to be reviewed to identify those individuals who provide their services through personal service companies.

  • To help you and your organisation, you will need to carry out a review of all employees and contractors currently working within the company and identify who are bound by the new rules.

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

o What are their responsibilities?

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

o How are they paid?

o Are they in direct receipt of any benefits or expenses?

Implement new recruitment procedures:
  • Put processes in place to determine whether the rules on non-payment will apply to future commitments. These may include who in your organisation should make a determination and how payments will be made to contractors in accordance with the rules on non-payment.

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

  • By managing the necessary controls and implementing the correct procedures now, most employers should be able to avoid any potential liabilities, while ensuring that the contractors with whom they work are fully aware of how the change will affect them.

Determination statement:
  • Once a statement of determination has been drawn up by the client, a copy must be provided to the contractor and, where applicable, to the recruiter.

  • If the contractor (and/or the recruitment agency) is unhappy with the declaration of determination, it must be submitted in writing. The client must then establish a status disagreement process and has 45 days to respond with a justification or amended statement of intent, including the reason for their decision.

  • If the client works with a recruitment agency, they should agree on the process of determining and how to make a decision as to how someone is a contractor. This will make it less likely that there will be a disagreement once the statement has been issued.

  • A statement of group determination is not allowed, unless each contractor performs exactly the same role and performs exactly the same duties. All the others must have individual statements.If someone says they are an expert in a certain area, they must have insurance to cover it.

  • The declaration of determination must be reviewed on a periodic basis (a contract must have an end date; it cannot be an open-ended contract). If something has changed within or in relation to the position of the company, the contract needs to be reviewed to ensure that it is still applicable.​

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

  • This refers to the amount of control that a company or a recruitment agency has over the employee. Where it is clear that they can exercise whatever control is required, such as hours, location, etc., HM Revenue & Custom may assume that, despite appearing to be self-employed through their own private service company (PSC), they are actually employees of the business, whether temporary or not.

  • If you want to maintain a similar relationship with a contractor, then you should review the existing contract they have in relation to their role and responsibilities in order to ensure that they are sufficiently distanced from the business 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 actual cost of their business as well as the additional payroll burden.

  • A cost review, in particular the National Insurance Contributions of the employer, may show that it is no longer economically viable to have as many contractors or consultants working under the new rules.

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