Key FAQs for Clients
Are all clients affected by the IR35 reforms?
There are a few exemptions – namely those businesses that are classified as ‘small companies’ using the definition supplied by the Companies Act 2006:
• Annual turn over not more than £10.2M
• Balance sheet total not more than £5.1M
• Not more than 50 employees
All other businesses will therefore have to take the required steps of the revised legislation.
Are recruitment agencies affected by the IR35 changes?
All recruitment agencies that handle payments to contractors (recognised as the ‘fee-payer’) will be liable under the reformed IR35 legislation from April 2020. This has been the case in the Public Sector since 2017.
There are certain conditions and factors of the revised legislation that will come into force. However, if all of the obligations have been met and all information is in place, then in simple terms, this means agencies carry the IR35 risk. This is why recruiters are advised to make sure a contractor’s IR35 status is set correctly and why businesses are required to ensure they also conform to the requirements of the legislation.
How will the off-payroll rules work in reality?
Determination of status (inside or outside of IR35)
Prior to contractor engagement, the End Client must make an employment status decision on the role, based on the true content of the role, business circumstances and need.
To support this determination of status, they may use tools to assist in confirming their position. This can, for example, include the HMRC’s official CEST tool.
The End Client must present the agency or contractor with their determination of status statement before there is a commencement of engagement – and ideally before any commitment is made by any party. This statement must show whether or not IR35 is deemed to apply to the contract.
Once the fee-payer has been notified of the decision and if the role is inside IR35, then the fee-payer will be responsible for deducting income tax and NICs from the contractor’s earnings.
For clarity, the fee-payer will often be the recruitment agency, but may also be a PAYE umbrella provider.
What is CEST?
CEST is the HMRC official determination tool, provided online. It stands for ‘Check Employment Status for Tax.’
CEST was released before the Public Sector IR35 changes in 2017 and is used by some in that sector for determination of status. However, it has been widely criticised for many reasons, including the key fact that it often ignores aspects of the IR35 legislation.
HMRC has announced that it will be making changes to its CEST tool and that these enhancements should be in place by the end of the year.
What does “reasonable care” mean?
Under the IR35 revision, there is a contractual chain of parties, all of whom are obliged to take “reasonable care” when making employment status determinations.
However, there is no clear definition of “reasonable care”, so the term is open to interpretation. Clearly, if a status determination decision is made following careful examination of the contractor’s contract and working conditions, including the completion of a determination tool from a trusted expert source, then this should demonstrate that “reasonable care” and effort has been taken.
What is a “blanket determination”?
When the off-payroll revision was introduced in the Public Sector in April 2017, there were a number of bodies (end users) that decided to make ‘blanket’ IR35 determinations – stating that entire groups of contractors were ‘inside’ IR35. This included whether or not their working conditions and contracts would indicate such.
This approach can appeal to companies who are risk-averse and is an approach already being repeated in the Private Sector. Alternatively, as we have seen with some major banks (including Barclays and Lloyds), some large businesses may prefer not to hire limited company contractors at all – and only employ individuals on a PAYE basis.
There is still a question to be answered that could affect blanket decisions. It is felt that, potentially, making business or project-wide determinations without reference to each individual situation or contract would not appear to demonstrate sufficient or “reasonable care”.
What should clients do?
Only engage with an agency or contractor once the determination assessment has been completed and agreed. There are a variety of determination tools available.
Engaging with recruitment specialists who have partnered with experts in the field means that they can advise on how this can be completed and will probably be able to link to relevant determination tools.
For an accurate review of the business set-up and IR35 status, we advise that you complete a professional IR35 contract review with your recruitment partner. This should be completed alongside a thorough examination of your internal practices.
How can we help you prepare for the change?
We have been operating off-payroll rules since April 2017, when they first came into place in the Public Sector, and therefore have significant experience and expertise in this subject.
We offer a range of services that will:
• Help you understand what impact the reform will have on your business
• Support you through the change process
• Help mitigate risk
• Help you adapt and future-proof your workforce accordingly
These services include:
• Workforce audit
• Contractor surgeries
• Engagement models
• Supply chain review and audit
• Statement of Work options
We have developed agreements with a number of our independent specialist partners to be able to support our offering with specific advice. This, along with our own expertise, means we are able to work with our clients across our group portfolio to ensure that fully compliant models and processes are established.
For more information, a general discussion, or to arrange a suitable time for an initial consultation, please contact our specialist Client Solutions team via the following routes:
Client Solutions Director – Scott Siwicki
M: 07904 046 045 E: [email protected]
Client Solutions team:
David Woakes M: 07741 644 767 E: [email protected]