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Are you ready for IR35? Here's what’s changing and how it will impact your business
There are some changes afoot with the IR35 legislation, and we thought it useful to detail these, and the potential implications, to any companies using Limited company contractors.
What is IR35?
- IR35 was introduced in 2000 to address concerns relating to individuals who supply their services via an intermediary (such as a Ltd Company).
- Any individual deemed ‘inside’ IR35 must pay income tax and NIC contributions.
- Any individual deemed ‘outside’ IR35 is classed as providing a genuine business to business service and is therefore not subject to the same tax treatment as employees.
- HMRC estimates that up to a third of workers operating via a personal services Ltd Company are incorrectly classifying themselves, leading to projected economic losses to the UK Treasury of approximately £1.2bn per annum.
What is changing?
- From April 2020, the Government will be amending the legislation to help challenge the classification of workers. This has already happened in the Public Sector and is being extended to the private sector.
- The key change is the responsibility of defining the IR35 status of the assignment will switch from the individual’s Ltd. company to your business, the recipient of the services!
So, what does this actually mean?
- From April 2020 you will be responsible for assessing whether the contractors/agency workers that you utilise in your business are carrying out work that is inside or or outside of IR35.
- Where a worker is assessed as being ‘inside’ IR35, the party who pays the worker will become responsible for deducting income tax and NICs and making tax payments to HMRC.
- That will either be you (if you have direct workers) or the agency / 3rd party supplier.
- The legislation will also place the onus onto you, the client, to inform the agency / 3rd party if the assignment is inside or outside of IR35.
What should you be doing?
Whilst the potential financial penalties can be significant if incorrect steps are implemented, there is time and support available to help. Most companies are acting now, so as to have this resolved well before April 2020 to mitigate any risk of financial penalty or loss of talent.
What are companies doing?
- Gaining a consolidated view of all their flexible labour.
- Assessing how the worker is engaged:
- If direct, ascertaining how they will manage this workforce in regards to IR35 and also inferred employment
- If by a recruitment supply chain, questioning if there is sufficient governance in place to make sure they are compliant?
- Confirming the status of the current workforce, to judge if that assignment would fall inside or outside.
- Measuring the fiscal impact:
- Will the worker absorb the change or require a rate increase to offset the change in regulations?
- If an increase, can the project allow for such an increase? If not, how exposed is the business to retaining or attracting the required resource to complete its projects?
- How will they retain project critical freelancers if neither an earning reduction nor cost increase is viable?
- What long term commercial frameworks or fixed price programmes could be impacted by these changes and what are the options to mitigate the risk of this change?
- For future assignments putting in place a revised requisition process to assess whether the assignment is in or outside of scope?
How can we support you?
As you can see, there is much to plan for at this stage. At Networkers, we are here to help our clients navigate this legislative change. We have already helped our Public Sector clients through the change and as a large Plc, we are well placed to help our clients through the change.
- We are sharing market information and best practice across our client community
- We are able to introduce you to independent specialists who can help assess and audit your existing contingent workforce, as well as providing you the latest market intelligence on the reform.
- We can offer options of compliant delivery solutions to help retain critical freelance resource and negate your tax liability exposure.
- We can offer support relating to mapping of resource availability and cost, to help you assess the fiscal impact/options
- We can assist with replacement of talent should some of your people leave as a result of the pending changes
- We can help you shape your policy around engagement of contingent workers
- Our parent group, Gattaca Plc, can deploy a total workforce solutions which gives you a single vehicle for all flexible labour mitigating the risk of non-compliance across your business
It would be easy to put this in the “to do later” pile, but April 2020 will be with us before we know it and acting then could look like avoidance rather than resolution. So our advice would be investigate now.
If you would like our support or pointing in the direction of independent advice, do not hesitate to get in touch.
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