A ROADMAP TO IR35 REFORMS
With the clock ticking on the countdown to the rollout of the IR35 reforms on 6 April 2021, FCSA Board Members Matt Fryer (Group Compliance Director, Brookson) and Tim Hunt (Strategic Planning & Sales Director, Crest Plus) have considered some of the actions that recruiters should be taking over the next six months to ensure they and their clients prepare to navigate these changes.
It is important to bear in mind that while it is prudent to manage the new tax risks associated with the changes, it is also important to not lose sight of the commercial risk and benefits this change presents.
Education is key.
Educate yourself and all the client-facing people within your business on the rule changes and what it means for you. Ensure you equip them with enough knowledge to hold constructive conversations with clients, potential clients, and candidates. It is important that you understand their concerns, challenges, and appetite for risk.
Supply chain engagement is critical.
Engage with your supply chains and use your cumulative knowledge to influence how your clients react to the changes. Understand how your partners plan to deal with the change and what solutions they have that can help you and your clients, and consider how you can jointly engage with your clients to provide them with the level of support they may be expecting.
Engage with your clients now.
Once you have educated your people within your business and partnered with any relevant specialists, now is the time to engage with your clients if you haven’t already started. Your competitors will be doing this, so make sure you are seen to be meeting the challenge head-on and leading the debate. It is important that you understand and try to influence how your clients plan to adhere to the rules. For example:
- Have they identified which category of workers will need a determination, and can you help?
- Have they identified which workers are likely to be ‘inside IR35’ or those who may need changes to their working practices, and what does this mean for you?
- Have they considered the impact on contractor pay rates for those considered ‘inside IR35’ (and how will you and your client work together if the contractor seeks to challenge the determination)?
- Whether there will be additional costs to your own business to retain key contractors?
- Do they view the optimal timing of moving workers to different contracting solutions where contractors are considered ‘inside IR35’, and are they planning on mandating or reviewing those solutions?
- Do you understand the consequences of using solutions that are at high risk or new to the market and untested, and the risks of those solutions being challenged by HMRC?
Understand if any of your clients have no plan, what this means for you, and how you might help them.
If they have no plan, this will cause you and your candidates’ issues later down the line.
Consider the following:
- Are you in a position to assist your clients in sourcing third party assistance with making the determination and proposing a process which works for them?
- Consider taking on a workforce management tool to support your business or partner with an IR35 specialist to outsource the determinations, ongoing reviews, assist with the challenge process and education. Choose carefully based on knowledge, experience, suitable qualifications, cost, value-added, and ability to offer workforce administrative management support beyond just a Status Determination Statement (SDS) creation.
- Consider how you will deal with the determination from your client. Do you trust it? Will you follow it? Will you or your candidates challenge it? Are you aware of your own PAYE risk and can you manage it?
If you think your client is likely to provide an incorrect status determination, consider obtaining your own insurances to cover the risk of determinations being challenged by HMRC.
Review your supply chains to identify any hidden risk or opportunities.
- Consider your payment options for ‘inside IR35’ roles – do you have an agency payroll, and can it/do you want to scale up your payroll function? Consider the complexities of employment and tax law when engaging large numbers of temporary workers. Can your supply chain help with this either via outsourced payroll or providing a payroll intermediary service?
- Do you currently use third-party payroll providers or intermediaries and how comfortable are you that they don’t expose you to debt transfer risk under the new rules or other associated risks such as Managed Service Company, Criminal Finance Act, loan charge scheme risk etc?
- Be wary of new providers in the market offering “IR35 solutions” or enhanced take home beyond straight PAYE. When it sounds too good to be true, it usually is!
Further considerations to minimise risk include.
- If considering Statement of Work (SOW), you must make sure this is bullet-proof – this is where HMRC may goes first. Is the actual substance of the relationship different from the legal contract/form of the relationship with the contractor?
- Document everything you do, including all communications and decisions, and advise your client to do the same – HMRC is expected to aggressively police, so plan to be ready for this.
- Focus on being prepared for 6 April 2021 but in doing so, make sure you have a ‘Business As Usual’ (BAU) plan for post-April.
- To risk-assess all of your payroll service providers. You can do this by checking to see if they have accreditation from a recognised industry body, such as the Freelancer & Contractor Service Association (FCSA). FCSA Accreditation, for example, shows that a service provider has demonstrated that it is operating in accordance with the highest industry compliance standards.
Leaving preparations for IR35 to the last minute is not an option for your agency. Businesses who are not compliant by April 2021 risk financial, operational and reputational issues as well as legal challenges from HMRC. If you haven’t already started preparing, now is the time to do so and using this roadmap will ensure you’re in a good position come 6 April next year.