***This blog has been updated as of the amended IR35 legislation released by HMRC on 7 February 2020*** Happy New Year! As we enter a new decade, April 2020 is fast-approaching… so, what better topic to write my first blog of the year on than IR35? Lorien is currently assisting a number of clients across a range of sectors to conduct audits, to optimise recruitment processes, and to prepare for the upcoming changes in IR35 legislation. However, there may still be a lot of businesses which find it a bit of a minefield, so hopefully the below helps.
So, what is IR35?
IR35 is tax legislation that has been around since 2000, and impacts those workers engaged as Limited Company contractors. The aim of this legislation is to ensure that individuals who are working like an employee but via an intermediary, often a Personal Service Company (“PSC”), pay the same amount of employment income tax (PAYE) and National Insurance Contributions (NICs) as other employees.
Why is it changing?
Up until now (within the private sector), the onus for determining whether a contractor falls inside or outside the IR35 rules lies with the individual contractor themselves. Because the contractor themselves makes the determination, there is difficulty in policing this approach and HMRC estimates that incorrect determinations by contractors in the private sector cost approx. £1.2 billion per year in missed PAYE and NIC payments.
From April 2020, this is set to change. With the reforms, the onus on determining whether a role falls inside or outside IR35 shifts onto the end user of the services of the Limited Company contractor. They are the party now required to review the job role and advise the contractor if it falls inside or outside of IR35.
How do you know if your business is affected?
IR35 legislation comes into effect for the 2020/2021 tax year. Where a Limited Company contractor is deemed inside IR35, any payments for services provided on or after the 6th of April 2020 will be deemed employment income and subject to PAYE and NIC.
Secondly, IR35 only affects (at least, initially) “medium and large-sized business.” This means that Limited Company contractors that are engaged by “small businesses” are not covered by the new rules, and the requirement to determine whether the role falls inside or outside IR35 remains with the Limited Company contractor.
A business is deemed to be ‘small’ if it meets two or more of the following criteria within a 12-month period:
- Turnover not more than £10.2 million
- Balance sheet total not more than £5.1 million
- Under 50 employees
If your business is impacted, then your next step should be to understand what contractor base you have today, what they are doing, and how they are doing it.
How can you prepare?
Some private sector businesses have found they do not have the time, or maybe the internal knowledge to adequately prepare for these reforms. So, we have designed several customisable solutions to support them through the coming months and beyond:
1. Bespoke Audit
Together with our established tax partner, we can help you assess on a case-by-case basis whether each of your contractors is inside or outside IR35 legislation. This fully managed end-to-end audit service will consider existing, future, and any ongoing engagements. It is covered by a Tax Liability Cover to protect you against any potential incorrect determinations to give you peace of mind.
We can take care of the payrolling, compliance, and administration of any PAYE, Umbrella, or PSC workers you may have that were directly sourced or referred to you. By consolidating these and providing regular reporting, together with a single invoice for all the workers, we can reduce the workload on your Finance teams.
3. Managed Service
We can take partial or full responsibility for your contingent workers through a Managed Service Programme (MSP) – freeing you up to focus on other business priorities. Our MSP provides end-to-end recruitment through to off-boarding; offers full visibility of your contractor workforce; IR35 support (such as role determinations and individual assessments via our tax partner); dedicated onsite or offsite account management; payrolling; VMS technology; and more.
4. Employed Consultant Model (ECM)
Employed consultants are permanently employed, removing IR35 risk, and supplied on an interim basis on day rate. They are part of a wider team or as a standalone resource within IT. This provides you with long-term resource with the flexibility of a temporary member of staff, and so is ideal for long-term projects that are part way through.
5. Statement of Work (SoW)
We can mitigate the IR35 risk by delivering outcome-based SOW projects. Here, rather than engaging workers on a time and materials basis, we provide experts to deliver against defined outputs, milestones, or deliverables.
If any of the above resonates with your business, we would be happy to assist you in providing a bespoke solution. If you’d like an informal conversation about the options available to your business, please contact me at email@example.com to discuss how Lorien can assist you.