IR35 compliance will only become more important as the days draw in to the countdown to the April 2020* reforms. It’s been precisely 3 years since the public sector reforms, so we’ll be taking what we’ve learned over these last few years to provide you with practical advice to make the private sector reforms more manageable.
As a recruiter supplying workers to public sector organisations, you will be familiar with the details of the legal obligations. With private sector organisations now facing similar changes, all contractor recruiters will be affected when placing a worker who is operating through a personal service company. Additionally, the private sector reforms will see the introduction of the Status Determination Statement (SDS), a client-led disagreement process as well as debt transfer provisions.
Recruiters IR35 Legal Obligations: Supplying workers operating through intermediaries
From 6th April 2020*, medium and large companies will now bear the responsibility for determining the IR35 status of a worker supplied to them if the worker is operating through an intermediary, such as a personal service company (PSC). Small companies will be the only exception to this shift in responsibility.
It’s important to know the qualifying criteria for what constitutes a small company, to be exempt from IR35 status determination responsibility. When satisfying at least two of the below conditions, a company will be considered small under the Companies Act 2006:
- “Turnover not more than £10.2 million
- Balance sheet total not more than £5.1 million
- Number of employees not more than 50”
If you place a worker on assignment at a small company, the worker continues to carry the responsibility of determining the IR35 status of his or her own contract.
But what are your legal obligations if this is all new territory for you?
IR35 Compliance Checklist for Recruiters
The changes may seem intimidating at first. Use our checklist below to help you along the way:
- Compile an audit of your current end-hirers. Understanding the IR35 standpoint of your clients will help you make better informed decisions, and help you communicate with the workers you supply.
- Ensure you have correctly classified small companies who are eligible for exemption against medium and large companies.
- Knowing your place in the chain of supply pre-reform will also go a far way in helping you understand your risk. Occupying the position of fee-payer (the organisation who pays the intermediary), will mean bearing the responsibility for making PAYE tax and NI deductions from the invoice value. Consider if you are willing to carry the risk of being the fee payer and if your systems will be able to cope. You need to consider how you will make PAYE deductions from PSC invoices.
- Running a further internal audit on your current supplied workforce will help you have a headcount of the number of off-payroll intermediaries you have supplied to end hirers. This provides valuable insight into your anticipated workload post-reform.
- Flag any contracts that will extend past the April 2020* commencement date for IR35 reforms and speak to your end hirer about their plans to assess these assignments.
- Importantly, ensure you are completely comfortable with explaining IR35 and the possible impacts to your workers and clients. Drawing closer to the reform deadline, you will undoubtedly be asked more complicated questions.
This checklist is not exhaustive, and we encourage you to approach an IR35 specialist if you are in any doubt or have any concerns.
Here at Parasol, we have developed our Business Impact Tool, to help you and your end hirers to quantify the financial impact of IR35 reforms, and the end hirers IR35 strategy on their organisation. You can access this tool by contacting agency support at firstname.lastname@example.org or by telephone on 01925 644 861.
* Update: at the time this article was written, the off-payroll (IR35) reforms were due to be implemented on the 6th April 2020. On the 17th March 2020, the UK government announced that it would be deferring the reforms to the 6th April 2021 to help businesses and individuals during the COVID-19 crisis.