- IR35 will apply to the private sector from April 2020
- Organisations to begin by reviewing their existing contingent workforces to determine which employment models are being deployed
After years of consultations and discussions about delays, the government has finally confirmed that IR35 will apply to the private sector from April 2020.
So, that leaves recruitment agencies and private sector organisations just eight months to become fully informed and prepared for all the changes to off-payroll working rules or risk the possibility of a not insignificant impact on their business performance and ability to attract top talent.
The changes will see the full burden of responsibility of classifying contractors’ and contingent workers’ IR35 tax status and their need to pay income tax and national insurance pass from the contractors to the medium and large private sector companies or recruitment agencies that hire the workers.
The news, although not a surprise, did lead to many lobby groups and businesses warning that the changes were “unworkable”, would take too long to implement and could lead some facing tax bills of potentially hundreds of thousands of pounds for incorrect IR35 classification.
There is no doubt that the news comes at a time where businesses and agencies are already facing a climate of post-Brexit uncertainty and are continually facing a daily battle to attract top talent, so ultimately these changes can only mean even more difficulties.
The initial rollout of IR35 into the public sector was widely criticised for being rushed and there are numerous stories of public sector organisations still struggling to attract and retain the best contractor talent.
Certainly, when the government altered IR35 tax legislation to include locum and agency staff who work for a public body or recruitment agency, it led to a lot of confusion and discourse within the industry and a lot more work and demand on resources for healthcare staffing agencies.
It is crucial that recruitment agencies fully understand their responsibilities under the new IR35 rules, so they can support the end-clients with making accurate status decisions and, in turn, protect themselves.
However, many fear that there will be blanket ‘inside IR35’ decisions made especially after the recent news that 98% of IR35 status assessments carried out by High Speed 2 (HS2) in 2018 deemed the contractor to be ‘inside IR35’.
After receiving a Freedom of Information (FOI) request from Contractor Calculator, HS2 confirmed that 979 of the 1001 assessments conducted in 2018 returned an ‘inside IR35’ verdict, with only 22 contractors deemed outside the scope of the rules.
This news came soon after Network Rail also confirmed that they had assessed 99% of their contractors to be caught by IR35 in 2018.
For the agencies working within the public sector, the last 2 years have seen the need to become well versed in IR35 legislation to enable them to decide on a case by case basis who falls inside IR35 and then take on the added responsibility of deducting tax and national insurance of the workers who do.
But the extra administrative burden has added major demands and costs and has once again hit margins and still many fear that they are not meeting the demands of the ongoing reporting and regulations requirements.
Determining the true status of a contractor is vital and if the test declares that the contractor is not within IR35, an agency has to be comfortable not deducting tax and NIC, especially with the additional risks.
There are concerns that many recruitment agencies will put off all the changes needed to internal systems and processes, such as contract generation, payroll and on boarding policies, however it is vital that agencies make the necessary changes now because next April will be here before we know it.
The new legislation will influence long term placements that are happening now and if new contracts are to be put in place then the process of ending current contracts and introducing new ones needs to be conducted in good time.
Payments made post April 2020 could also be influenced if related to work carried out in March 2020.
Samantha Hurley, director of operations at the Association of Professional Staffing Companies (APSCo) and co-chair of HMRC’s IR35 forum has said that organisations should begin by reviewing their existing contingent workforces to determine which employment models are being deployed.
Hurley also recommended ensuring IT systems and internal processes were in order, to cope with the new rules. “To be forewarned is to be forearmed,” she said.
Agencies need to start a conversation with their clients now to ensure they identify all the potential pitfalls ahead of the launch.
The good news is that there’s still time for agencies to develop a practical solution and strategy based on evidence gained from the experience of the public sector and knowledge of their talent pipeline.
A great place to start would be our recent blog ‘So, what should agencies be doing now?’ which offers some great action points to get you started and if you need any more support speak to us.
We help and support agencies who are struggling with accounting and payroll functions with accounting services that help them increase productivity, reduce internal staffing liabilities whilst delivering significant cost savings.