IR35 - Four things recruiters should be doing now
In October 2018 the Chancellor announced that HMRC were pushing ahead with their extension of the off-payroll rules in the private sector from 6 April 2020.
The REC recently met with HMRC to discuss how the current off-payroll rules in the public sector should be modified ahead of the private sector roll-out – we discussed HMRC’s ‘Check employment status for tax’ tool (CEST), blanket decision-making, the end client’s liability for failing to take reasonable care in making its status decision, and the additional burden the proposed small business exemption could have on recruitment agencies.
While it was clear from our meeting that there are a number of practical issues with the off-payroll rules which will need to be addressed ahead of April 2020, recruiters cannot afford to wait around. Here are four things recruiters can and should be doing now to prepare:
1. Assess who amongst their contractor populations might be affected by this change
It is imperative that agencies and end user clients begin assessing their contingent workforce to identify how many are working through a personal service limited company and how they may be affected by these rule changes. Will clients be prepared to pay increased rates for those who are now deemed to be inside IR35 or will they expect the current rates to cover all additional deductions and costs? Will clients continue to use as many contractors?
2. Identify who within their organisation should make the status decisions and ensure that those individuals understand how to asses status
It is vital that agencies and end user clients make sure that key internal functions such as Legal, HR, Finance, Procurement and Tax understand and are prepared for the changes. The REC will be producing toolkits for both agency staff and end user clients. HMRC are working on improving CEST but they say that, provided the information put into the tool is correct at the time, they will stand by the result it produces.
3. Evaluate existing recourses and payroll systems
Agencies will need to evaluate their current payroll capabilities to contractors and determine where investment in a new system is needed. We understand from the public sector roll-out that this is far from straightforward, and as a result agencies spent significant time and resources and incurred significant development costs.
4. Don’t be tempted by ‘innovative’ or ‘HMRC-approved’ solutions to these changes
Agencies are likely to be approached by payroll organisations offering highly questionable tax avoidance schemes or substitute ‘solutions’. While some may claim to be HMRC-approved, HMRC do not approve schemes. Also be wary of schemes coming with a QC’s opinion – question why a scheme would need this to show it is compliant. Compliance with tax rules is vital and any agency seen as being non-compliant faces heavy penalties and claims for unpaid taxes and NI.
