26 February 2021 by Spencer Symmons
In just a few weeks’ time, the long-anticipated wait will be over, and the IR35 reforms will come into effect for the private sector. However, despite the 12-month delay due to COVID-19, countless businesses, employees and contractors are still feeling apprehensive about the newfound shift in responsibility.
IR35 is a term used to refer to the off-payroll working rules which determine whether a contractor is working with a company as a self-employed individual – therefore paying and processing their own taxes – or should be included on the organisation’s payroll, adhering to the tax rules which are applicable to the PAYE system.
On 6th April 2021, medium and large-sized private companies will become responsible for determining whether the contractors they work with fall inside or outside of the new legislation. If it’s the former, the contractor must be viewed as an employee; if it’s the latter, they must be considered a limited company who is operating on a self-employed basis.
Getting to grips with IR35 needn’t be a complicated or daunting process, but it’s an absolutely vital one. So, why might you have let planning for the upcoming reforms fall off your radar, and, more importantly, how can you get back on track?
Last month’s Budget confirmed that there will be no further delays to the private sector rollout, and those that are hoping for another last-minute deferral are almost certainly going to be disappointed. Over the past 12 months, businesses who previously buried their head in the sand have had a second chance to catch up – but many have side-lined the issue, with 52 per cent of businesses claiming that the reforms are contradictory or confusing.
From April onwards, employers must provide a Status Determination Statement (SDS) to every contractor they intend to keep working with, and all employment contracts or working agreements should be updated to communicate all IR35 criteria as clearly as possible.
Recent research shows that 41 per cent of companies have simply imposed a blanket ban on working with limited companies, in an attempt to avoid taking on additional responsibility. In doing so, organisations are cutting ties with existing working relationships, disrupting their own ability to meet project deadlines and fill skills gaps in order to take on new projects.
There’s no need to sever relationships with talented – often highly-specialised – contractors, but businesses must conduct a full audit of all contractors they currently work with and consider adapting their financial model where appropriate. Employers must assess the status of each contractor on a case-by-case basis. Partnering with an external agency can help to take the pressure off, or alternatively the government’s CEST tool can help you assess each individual.
Given the initial reason for the delay to IR35 reforms, the sudden impact of COVID-19, it’s not surprising that businesses had to shift into survival mode, setting any long-term plans aside. However, with many businesses now being in a strong position to shift the attention to growth and hiring, changes to compliance will dramatically impact the way in which they can do so.
57 per cent of contractors stated that they have not yet heard from their end client regarding the IR35 reform – with less than a fifth having received a Status Determination Statement (SDS), outlining their perceived IR35 position. Contractors’ IR35 status must be made clear from the get-go, as failure to comply with the latest legislation will undoubtedly lead to penalties for unpaid tax and NICs, not to mention the potential irreversible damage to the organisation’s reputation.
If you feel unprepared for the upcoming changes to legislation, or are concerned about the potential disruptions to hiring, we’re here to help. Simply get in touch and we’ll help get your business back on track.
07 March 2020 by Spencer Symmons
17 August 2020 by Spencer Symmons
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