Preparing for IR35, what agencies need to know

REC

Amid the global pandemic that has been COVID-19, recruitment agencies in the UK have been preparing for the biggest tax reforms in recent times, IR35.

The Finance Act 2020 received Royal Assent in July, bringing with it confirmation that the that the IR35 changes in the privates sector will be implemented on 6 April 2021. From that date, the responsibility for managing IR35 moves away from personal service companies to clients and fee-payers. The new rules apply to all clients that are not SMEs and that have a UK connection. While the changes have been looming for several years, having first been introduced in the public sector in 2018, the  government delays to the private sector roll out, and now the global pandemic has left some clients unprepared for the changes.

Feedback from REC members has been mixed, with some feeling ready and others not so confident in their ability to adapt to the new rules in time. Unsurprisingly Brexit no deal contingency planning as well as managing through COVID, have been prioritised over the forthcoming tax changes. Although it may be tempting to push IR35 preparations to the side-lines, not preparing and falling foul of the new rules will have huge financial consequences. Agencies supplying contractors could be financially liable for loss of tax if, after an enquiry, HMRC considers the engagement as falling inside of IR35. Meanwhile agencies who can demonstrate knowledge in the area will undoubtedly be more attractive for contractors and hirers.

With just six months to go agencies should be ready to answer the following five fundamental questions:

  1. What clients are SME’s and therefore exempt from the new rules?
  2. Which workers work through their own Personal Service Company (PSC)?
  3. How will your clients be making their determinations (will they be using the CEST tool or other channels)?
  4. Who is in your supply chain?
  5. What records do you keep?

Planning for the changes may seem like a daunting task, but support is available. In preparation for the new rules, HMRC have relaunched their IR35 customer education and support programme as a series of webinars. The final technical guidance on the changes to IR35 was also published the same week as the education relaunch. The guidance was updated with more examples and clearer explanations of how agencies and intermediaries should apply the new rules.

The REC has also been working hard to help the industry prepare, offering a mix of virtual seminars, and online resources exclusively for members. REC members and non-members can book a place on the IR35 webinar through the REC website. The REC’s IR35 hub also contains helpful resources you can use to understand the changes, what needs to be done, and how to go about getting ready.

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