IR35 Safe

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Understand your position

Don't get caught out, be prepared!

We can't be much more direct than saying that you as a business needs to start preparing IR35 now. Yes, the law changes do not come into effect until April 2020. But there is a whole raft of operational things to be getting on with to get ready - and to be flexible, because it’s likely that some guidance from the government may come closer to the deadline than businesses would like.

The details of the changes are not finalised yet and the Government consultation has only just finished - if you want to read it, you can see it here. We won’t get the granular ‘black letter law’ as part of the Finance Bill until some time in the summer, but the experiences of the public sector and the responses to the consultation mean that what’s rolled out in the private sector won’t be an exact match for what the public sector have experienced. For example, there are likely to be new rules on information flow and mechanisms to encourage better conversations between clients and contractors if there is a disagreement about what the correct IR35 status should be.

The critical thing to begin now is an exercise to understand the current profile of any off-payroll workforce and therefore the scale of the change to be managed. We have seen that knee-jerk reactions and poor commercial decisions in the public sector were driven by fear and a lack of understanding of how exposed public sector users of freelance contractors were to the new rules.

Private sector users and intermediaries should begin conversations now, with each other and their suppliers, about how best to manage the new rules. In conclusion, clients need to have a plan and a timetable!

Step 1

Assess your current freelance contractor workforce. Here you are looking to understand what contractors you are using TODAY:

  • How often do you hire freelance contractors and how many do you have in the business at any given time? Do you have a clear picture of ‘who’ and ‘where they are’?
  • If you ran your current freelance contractor roles through IR35 what percentage of them would fall inside IR35? - you can find this from the CEST tool above.
  • If you have any contractors on-site now who you expect to be in the business past April 2020 then assess early and communicate the next steps in advance to avoid uncertainty and loss of resource.
  • If you assess many of your existing freelance contractors inside IR35 then prepare for costs to rise, both from Employer NI and increased day rates.
  • Are your current freelancers aware of IR35, if not, maybe send them to our Freelancer IR35 guide?

Step 2

Assess your current freelance contractor engagement process. Here you’re looking to understand, and be prepared for, the required administration of IR35. Some questions to answer:

  • Do you know who is bringing in freelance contractors - are they all familiar with the upcoming legislation? Are proper written contracts being signed?
  • If you are hiring freelancers via recruiters are they familiar with the legislation and are they ready?
  • It’s particularly important to ask about payments here, are they ready to pay more freelancers via PAYE or do they have the partners in place to support them?
  • If you’re hiring freelancers (who may be inside IR35) directly then those same payment questions apply to your business.
  • Can you develop a process for deciding if you believe a contract is inside or outside IR35? To do this you essentially have three options:
    i) An IR35 online tool
    ii) CEST - the Government’s tool
    iii) A manual assessment by an expert

Traps to avoid

As with any major piece of legislation (think: GDPR) there are a number of mistakes that can be made, here is a short list:

  • Avoid blanket assessments: These will almost certainly be unlawful and will cause you a lot of headaches.
  • Don’t ignore the issue: This one is pretty obvious. IR35 is not going away and if you’re hiring freelancer contractors, then you need to be prepared!
  • Don’t try to pass all the costs and taxes downstream: While it’s tempting to try and push the costs onto the freelance contractors themselves this will lead to problems. Many of these freelancer contractors will be in specialist fields with specialist skillsets, they will simply move to a different contract.
  • Don’t expect recruitment partners to do everything for you: Ultimately the Government has determined that the risk is on your business, so be prepared to shoulder it!
  • Don’t think this is just a problem for one department: This is not a recruitment or HR problem, nor is it a procurement one. All managers of departments that use freelance contractors need to be prepared for the changes. Failures here could lead to incorrect assessments and risk of fines.

What are the risks for non-compliance?

Misclassifying contractors outside of IR35 creates a risk that HMRC will launch an investigation. This can result in back taxes due, penalty fees and interest charges, alongside the time costs and legal fees for you.

Beyond this, if it is discovered that you are deeming contractors outside IR35 without reasonable care (for example, on purpose to avoid payments), then you could be accused of facilitating tax avoidance, which is punishable under the Criminal Finances Act!

Of course, all of the above can also come with significant reputational risk for your business. So it's in your interest to be prepared!

If you're an organisation that would like to know more about IR35 Safe by YunoJuno, we would love to give you a demo of the product. Simply enter your details below and one of our team will be in touch.

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