Best Assess #2

Dave Chaplin is CEO of IR35 compliance solution IR35 Shield. In the second part of a three-part guide to the Off-Payroll legislation coming into effect in April 2021, he outlines how best to assess a workforce.

Part two: how to assess a workforce

It is vital that compliance protocols are established now, well ahead of April 2021, and many companies will seek help from their accountants and advisers to help ensure a cohesive transition.  Key to this is sourcing trustworthy compliance advice and accurate status assessments.  There are a number of characteristics to seek in a compliance service, including:

  • Demonstrably accurate status assessments
  • Compliance-led services that offer ongoing protection
  • Pedigree in IR35 matters, including recent tax tribunals
  • Fast, cost effective and administratively efficient

Though contract reviews by some IR35 legal specialists will tick these boxes, the necessary expertise is in scarce supply, and few organisations will have the capacity to assume the work required of them by firms with large flexible workforces. Fortunately, specialist, scalable compliance solutions are available online, providing easy and affordable access to the necessary expertise.

While HMRC also advocates its Check Employment Status for Tax (CEST) tool for status assessments, the consensus within the contract market is that the tool is skewed towards delivering ‘inside IR35’ determinations. Furthermore, the taxman has been known to challenge CEST’s outcomes, which has resulted in significant tax bills for some of its users.

Evaluating the contingent workforce

It is important for hirers to establish which contractors require status assessments – i.e. limited company contractors who firms intend to retain beyond April 2021. At this stage, an initial assessment of each engagement based on the information at hand can help gauge which contracts pose problems and which projects might be at risk because of the Off-Payroll rollout.

Having evaluated the contingent workforce, a quality compliance solution or provider can help identify engagements posing an IR35 risk and propose risk mitigating wholesale changes to working conditions. Changes at this stage can prove highly beneficial, though they must be rigidly applied in practice and reflected in updated contracts.

Unfortunately, despite changes made to working practices, it may be impossible to retain certain contractors on an ‘outside IR35’ basis. Though contractors can obviously work within scope of the legislation, the costs of such engagements need to be considered by companies, with some contractors likely to increase their rates in response to their deemed status and subsequent tax increase.

Negotiate engagements before April

Once the workforce is profiled and full status assessments have been conducted, these can be carefully communicated to your contractors to understand likely outcomes. Having considered the financial impact of ‘inside IR35’ engagements on the business, firms will be better placed to discuss any rate renegotiations with contractors.

Where contractors and firms cannot reach agreement on any new terms, the existing ones will need to be served termination notices. An engagement model for those remaining on an ‘inside IR35’ basis will need to be agreed. With the renewed rise of non-compliant payroll schemes an increasingly prominent concern in the market, firms seeking to engage employee-like temporary workers who wish to entirely eliminate any tax risk would be best advised to simply issue fixed-term employment contracts.

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