As somebody who works for a business that engages contractors, you may have been looking for information on how to prepare ahead of the IR35 reforms to the private sector. Whilst there’s plenty of information on offer, this can often make it a confusing task. To make things easier, we’ve answered some of your frequently asked questions around the topic of IR35 for end hirers.
How do the current rules affect end hirers?
Under the current rules in the private sector, end hirers do not make any decisions regarding the IR35 status of contracts. The responsibility currently lies with the contractor or limited company contracted to complete the work, to determine their IR35 status for each assignment they undertake, and to re-examine their status if they change assignment.
What is due to change for end hirers?
As an end hirer, the IR35 reforms to the private sector will have significant implications on the way you engage contractors. The responsibility of determining a contractor’s IR35 status will fall to you, as an end hirer, rather than the contractor themselves where the end hirer will be a medium or large organisation.
Once you have determined the IR35 status of the assignment, you are required to issue the status determination statement to the contractor and the next organisation in the supply chain. You must implement a ‘client led disagreement process’ to enable contractors to challenge status determinations that they believe are incorrect.
What steps should I take to prepare for the reforms?
As an end hirer, there are a number of new responsibilities you will have post April 2021. We’ve broken this down into 4 steps:
1. Identify your off-payroll workforce
This is the number of contractors you engage via a personal service company (PSC). It is your responsibility to identify any outsourced services, and who is the responsible party for determining the IR35 status of these contractors.
If the service is genuinely outsourced, this will be the service provider, unless this is a small company.
2. IR35 assessment and strategy
Decide who in your business will take on the task of assessing current arrangements for each contractor, and how this will be carried out. You must also have a strategy in place for assessing future arrangements. Will this be embedded into your recruitment process?
3. Communication and training
You must ensure your team has received the relevant training on IR35, and any outstanding questions have been answered. Particularly if they will be contributing to status assessments.
It’s also imperative you keep your contractors updated and educated on the off-payroll rules, and whether these apply to their assignments.
4. Taking care of compliance
The off-payroll rules include a requirement to take ‘reasonable care’ when completing status assessments. Failure to do so will mean that the status determination statement is invalid and the liability for any unpaid tax will sit with you. It is important when the reforms to the private sector come into effect, to make accurate status determinations and communicate Status Determination Statements to your contractors and the first agency in the supply chain.
Consider how payments will be made to contractors inside IR35, and work with your agency partners to confirm who will carry the tax liability (the fee-payer).
As well as this, take a look at the internal systems you currently have in place. This includes your payroll software, process maps and HR policies to see if you need to make any changes.
And finally, audit your supply chain. All parties must be operating in a compliant manner. The inclusion of debt transfer provisions in the April 2021 reforms mean that should the fee payer fail to make the appropriate deductions from pay for an inside IR35 assignment they can transfer the liability up the supply chain to the end hirer. It is therefore essential to complete due diligence on all parties in your supply chain.
I’m a small company, does this apply to me?
If you are an end hirer in the private sector and you are a small company, you are exempt from the reforms on 6 April 2021. A small company is defined according to the Companies Act 2006, as having:
- A turnover of no more than £10.2m
- A balance sheet total of more than £5.1m
- No more than 50 employees
From 6 April 2021 all medium and large-sized private sector clients will be responsible for determining if IR35 applies to assignments.
With you all the way
At Parasol, we’ve been guiding end-hirers, recruitment agencies and contractors since 2000. To find out more about the IR35 reforms and their effects on you as an end hirer, get in touch with our experts on 0800 464 0632.