The IR35 reforms to the private sector are almost upon us and are set to change things up for contractors and businesses across the country. As a recruitment agency, you’ve got to know the ins and outs of IR35, whilst keeping up to date with any changes in legislation.
As the IR35 reforms are due to come into effect on 6 April 2020*, there’s not much time left to prepare. We’ve put together a list of things you must do from an internal perspective before this date.
Set up a steering committee
Steering committees are in place to organise key stakeholders and empower them in steering a project to successful conclusion.
The reforms to off payroll working present a significant change and one that will take time to prepare for. Establishing a project team to drive this change is a good starting point.
Hold training sessions for your teams
The IR35 legislation is complicated and the reforms do nothing to change this. It is likely that the end hirers you work with will look to you for support in managing these changes. Ensure everyone in your business is up to speed with the latest updates by holding training sessions and regularly updating your teams as the legislation evolves.
Your Parasol account manager can organise a tailored training session for you and your teams, to aid your preparation ahead of the upcoming reforms.
Communication is key
Start talking to your clients about the proposed reforms, and what this will mean for them. Develop a communications plan, to ensure your contractors understand the changes and how these will affect them depending on their IR35 status.
Profile your contractors to identify who is likely to be inside or outside IR35
Work with your end hirer to profile your contractors. Identifying those that are essential to your end hirers business as extra care must be taken to ensure the risk of them walking is minimised. You can then make recommendations as early as possible, for any contractors who are likely to be found inside IR35.
Determine your end hirers IR35 status assessment process
Work with your end hirers to confirm who will be responsible for assessing current arrangements for each contractor, and what tools they intend to use. You can use HMRC’s CEST tool, or get each contract reviewed through an independent IR35 contract review service for complete peace of mind, such as Qdos.
Work with your clients to identify how they will handle inside IR35 determinations
Once you have reviewed the assignment, it will fall either inside or outside IR35. If it falls inside the legislation, there’s some options you can give your clients:
- Work through a compliant, trusted umbrella company, such as Parasol
- Work through your PSC, although inside IR35. This will mean you will likely have fee payer responsibilities. Consider if you are willing to accept this risk.
Calculate the financial impact of the reforms
As a recruiter, you must work with your clients to calculate the financial impact of the reforms. This can be done using our IR35 Business Impact Tool. Our tool will allow everyone to work together in establishing a cost effective and fully compliant IR35 strategy.
Communicate and apply the Status Determination Statement (SDS)
The Status Determination Statement is a document that must outline the end client’s IR35 status and must also detail the reasons why this determination has been made.
The end hirer must provide this statement to the contractor directly and the next party in the supply chain.
Review and update all technology and payroll systems
You will need to evaluate your current payroll systems and determine whether to invest in a new system. Does your current system deduct the relevant tax and National Insurance contributions? Are your existing payroll systems suitable for managing this change? And finally, can you issue payslips to those operating inside IR35?
Any contractors that fall inside IR35 will need to be added to your payroll system.
Review and audit your Preferred Supplier List
It is more important than ever to establish a preferred supplier list (PSL). The off-payroll reforms allow HMRC to recover any unpaid tax liability for other parties in the supply chain where the ‘fee-payer’ has failed to make the required deductions.
Should a tax avoidance scheme enter the supply chain and fail to make the appropriate deductions as fee payer, you may find yourself with an unexpected tax liability.
HMRC confers the most responsibility for policing the supply chain to the fist agency in that supply chain. This means HMRC will first transfer the debt to the first agency and if unable to recover this here, they will shift the liability to the end hirer.
Reviewing your PSL regularly will help ensure you minimise the risk of a tax avoidance scheme entering the supply chain.
With you all the way
We’ve been helping recruitment agencies navigate the industry since 2000, so we understand just how important compliance is. We’ve put together a downloadable checklist for you to download and print, to get you started. If you would like more support around the topic of the IR35 reforms to the private sector, then call our agency support team on 01925 644 861 who will be more than happy to point you in the right direction.
* 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.