Clarke Bowles, Head of Key Accounts at Parasol looks at the prospects of blanket bans

Despite a temporary postponement this year, the highly-anticipated reforms to off-payroll working rules (IR35) are coming into play in the private sector in April 2021. This gives medium to large companies, agencies and contractors less than six months to ensure they have comprehensive plans in place to deal with the new changes.

With several leading businesses stating that they will refuse to engage with Personal Service Companies (PSCs) post-April, many are understandably worried about the effect that these “blanket bans” could have on the contracting industry.

Given businesses have already been adversely affected by government action to prevent the spread of COVID-19, the reforms to off-payroll working are coming at a particularly difficult time. It is therefore understandable that some companies are turning to blanket bans as a quick and easy route to compliance. However, this decision is likely to have negative implications, and the impact of this on your business and your contingent workforce needs to be carefully considered.

Understanding the changes

For those companies turning to blanket bans, it’s important to remember that HMRC is pushing forward with the reforms because one-third of limited company contractors were previously reported to be working non-compliantly. However, this also means that two-thirds of contractors are working correctly, in line with HMRC’s guidelines. Blanket bans unfairly penalise an overwhelming majority of the UK’s contracting workforce.

With the upcoming reforms, it will become the responsibility of the end hirer to determine the IR35 status of an assignment and issue a Status Determination Statement (SDS). The responsibility for assessing IR35 status currently sits with the contractor, but this accountability, and crucially the liability for any unpaid taxes, will switch in April. This is one of the reasons we have seen some knee-jerk reactions with blanket bans.

It is imperative to understand that the rules around what constitutes inside/outside of IR35 have not changed. Therefore, if a contractor is currently compliantly operating outside IR35, this should remain the case post-April 2021.

Implications of blanket bans

Blanket banning of PSC’s effectively puts everybody in a tax position similar to that of being inside of IR35, regardless of their working practices. This will have huge ramifications for the contracting industry, as well as UK PLC more widely.

Predicting a skills shortage

If blanket bans persist, there’s every chance it will leave a talent vacuum across the entire industry. Currently, there are more than two million self-employed people in the UK, many of whom choose this method of working because it best suits their circumstances and offers them flexibility in their working life.

Many companies use contractors and freelancers for their expertise, or to plug a skills gap among their workforce. Post-April, end-hirers are more likely to attract top talent if they are taking reasonable care when completing Status Determination Statements. An accurate outside IR35 SDS will mean the contractor maintains the same take-home pay.

HMRC has already confirmed that Status Determination Statements can be issued before 6 April 2021 and will be valid after that date, providing they meet the legislative requirements. However, the legislation that introduces the SDS will only come into force on the new April 2021 deadline.

This means that companies can already make significant progress to be ready for the new deadline. For companies that instead choose to enforce blanket bans, they will inevitably lose out on top talent to competitors, who are completing Status Determination Statements with reasonable care on a case-by-case basis.

Education and preparation

The ramifications of blanket bans have the potential to be huge for all involved, yet this can all be solved with accurate assessments and compliance across the entire supply chain.

There’s a certain amount of fear associated with IR35 and there are very real risks, but it’s important for those affected by the new reforms to take some time to research the specifics and anticipate the implications.

With the six-month countdown now on, education will be the key to managing the upcoming transition. It’s something we’ve been working hard to do with our agency partners and their clients/end hirers, but it’s clear that more needs to be done with the clock ticking.

Regardless of where you sit in the supply chain, educating yourself and your workers on the reforms and what will be expected of individual roles under the new rules will be paramount.

At Parasol, we have a dedicated IR35 resource hub to help agencies, end hirers and contractors navigate the changes and prepare for the upcoming reforms.




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