IR35 – Can I Just Ignore It?
Changes to IR35 for Public Sector workers were introduced back on 6th April 2017. Prior to this it was up to the contractor to decide their own IR35 status, however the change in regulations meant that this responsibility sat with the end client and the agency paying the worker. Those in the private sector breathed a collective sigh of relief at this point as this was something that did not affect them and could be put off. However, this is no longer the case and immediate action is necessary.
Although the changes affecting the Private Sector were announced back in 2018, we have found that that some large and medium businesses are still unprepared for these changes. At present, small businesses (those meeting two of the following criteria: annual turnover of less than £10.2million, a balance sheet total of less than £5.1million and less than 50 employees) are not impacted by these changes. For those companies that are taking action, we are seeing projects turning red and struggling to deliver due to resource issues.
So, how will this actually affect you?
More Paperwork, Governance and Cost
When taking on a contractor, you will need to decide whether the contract falls inside or outside of scope. It is important that the correct decision is made as getting it wrong will mean bills for fines as well as the taxes will be heading your way from HMRC. Although larger companies are likely to have specialist legal teams for this purpose, medium size businesses could find themselves relying on individuals without the correct legal knowledge to make the correct decisions. To make things more complicated, there are no blanket determinations allowed, meaning that every contract will need to be carefully looked at. If it is decided that a contractor is inside of scope, it will no longer be a straightforward case of paying the invoice according to the agreed terms - instead payroll will need to also be ran to ensure that the correct amount of tax is deducted from the contractor. This increases the admin for the business and slows down the process in the best-case scenario. In the worst case the business could be facing significantly higher costs for the contractor than budgeted for.
More Barriers to Resource
In the modern business environment of fast-moving technology and ever-changing requirements, contractors play an important role within the workforce. However with these new rules coming into play, along with the uncertainty sometimes surrounding defining whether a contract is inside scope (even HMRC’s own CEST (Check Employment Status for Tax) Tool is far from reliable), many experts believe that we will see a decline in contracting as those contractors look to move into permanent roles instead. Afterall, why would anyone choose to be taxed in the same way as an employee without having the rights of an employee? This could mean that projects face longer delays whilst the correct resources are found, key resources are lost from projects or businesses look for alternative ways of filling short term roles.
Quantum Plus can help you mitigate these issues, as you may choose to instead look at bringing in a consultancy firm on a fixed-fee, results based statement of work to achieve results in projects that would have previously been passed onto short term contractors. If your business could benefit from moving to an outcome-based approach from a current process of relying on temporary resources then please do get in touch and we can see how we can help you.