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An unexpected consequence of the pandemic has been the postponement of the changes to IR35 and the rules on tax for self-employed workers. Now they’re scheduled for April 2021 – so it’s time to make sure you’re up to speed with how it will affect you and your recruitment agency!
Back in 2019, we wrote about the upcoming changes to IR35 and what recruitment agencies need to do about them to make sure they comply with the new laws. Now, having been put off for 12 months, we’ve revisited and updated our advice – but first, a little background.
What is IR35?
IR35 has actually been around since 2000, and it basically determines how an individual working via an intermediary – such as a personal service company (PSC), another company (including umbrella companies) or a partnership – should be taxed. Its aim is to prevent tax avoidance by anyone working as a ‘disguised employee’; in other words, supplying their services to a client in the same way a full-time employee would but doing it as a contractor or temporary worker through the intermediary.
What’s changing and why?
Historically individuals were allowed to determine their own IR35 status, so those using a PSC were responsible for their own tax affairs. However, the government believes not all PSCs have been operating IR35 properly, and according to HMRC only about 10% of PSC owners have been assessing their status as employed and operating PAYE/NIC on fees received.
So now, HMRC are looking to increase compliance and avoid the underpayment of taxes – which is why from April 2021, responsibility for deciding IR35 status will move from the contractor to the organisation using the contractor’s services. And in in many circumstances that would be the recruitment agency.
What is the impact of IR35 on recruitment agencies?
The changes will affect anyone using self-employed contractors and flexible workers – and if you’re providing off-payroll workers who operate through intermediaries, you’ll need to have a solid understanding of IR35. You’ll also need to work closely with your clients (the end-hirers) to make sure you both understand the IR35 status of each off-payroll worker – which means you’ll need clear processes and procedures in place to be sure of reaching accurate IR35 status decisions every time with the end-hirers. As the recruitment agency you may well be responsible for paying the correct tax and National Insurance to HMRC – so if you get it wrong, you could not only be hit with a hefty tax bill, but also liable to a severe penalty.
What do recruitment agencies need to do before April?
Now’s the time when you should be assessing all your off-payroll workers to determine their IR35 status; and you need to be contacting them and your clients to make sure they understand their responsibilities and what they need to do.
That means making sure you and the key people in your organisation thoroughly know the ins-and-outs of IR35, have everything in place and stay up-to-date with the legislation. You’ll find lots of helpful info at gov.uk, including white papers and webinars, and you could set up a training session or steering group to help make sure your agency complies when the time comes.
Alternatively, if you use a third party for your payroll and admin – such as Back Office – get in touch with them as soon as you can. They should be able to give you the right support.
Whether you already work with Back Office or not, our team can help you, your off-payroll workers and your clients from falling foul of the new IR35 rules. Just contact us by calling 01260 280 290 or email one of our 1R35 experts