IR-35 in the Pharmaceutical Sector

What’s happening?

In April 2021 (a year later than planned), there will be a huge shift in the way that the private sector can hire interim staff, as the HMRC rolls out changes to the IR-35 regulation. The shift in liability will come into play, affecting contractors who work through limited companies, and companies that use this type of workforce. These changes are going to focus mainly on medium & large sized companies and this will certainly affect the UK Pharmaceutical industry.

What are the changes?

Prior to 5 April 2021, the individual contractor was responsible for deciding their employment status for each contract, meaning liability fell on them when paying tax. From April 6th 2021, the end client will be responsible for determining whether or not a contractor is inside or outside of IR-35. Working inside IR- 35 means that the contractor is regarded as an employee for tax purposes so will have to work through an umbrella company or PAYE. Outside IR-35 means that they are considered a true contractor, and can continue as they are, working through their Limited Company.

What affects the IR-35 status?

There are three main factors which will determine whether a contractor sits inside or outside of IR-35.

1. Control

What extent does a client control how, when, where and what work is carried out? Does the client dictate how the work will undertake the assignment? Who organises the schedules and deliverables?

2. Substitution

This clause is determined by whether or not the limited company has another employee who can perform the work if the main contractor is absent. Does the individual offer personal services exclusively to a client or does the limited company provide its services?

3. Mutuality of Obligation

This clause looks at the relationship between a contractor and the client and limited company contractors should never expect or receive mutuality of obligation. This means when a certain project is completed, the contract comes to an end.

4. Other Factors

There are other factors beyond the ones listed above which I am happy to discuss and as the list constantly changes, it is important to stay up to date.

The Government have made a simple way to check employment status which can be done by using the CEST tool on their website which can be accessed by using the link below.

* Helpful tips to increase the chances of working outside of IR-35

1.    Have a clear start and end date on the project. This will show the limited company are providing an expertise to deliver a specific project which cannot be done internally. Managing multiple projects could usually be done by a permanent employee.

 2.    Work through a 3rd party organisation e.g. A Consultancy or Recruitment Agency. This will spread the risk and as the client is not paying the contractor directly, it is less like a permanent employee 

 3.    Indemnity insurance. This will show the contractor is set up properly as a Limited company as they have invested into their company so less likely to turn to permanent employment if they get the chance.

4.    Flexibility on working hours. Having a flexibility on working hours will differentiate the contractor from a permanent employee. This can be done by working with different clients at the same time or changing number of hours worked with the client each week.

5.    No company perks. This sounds obvious but there are a number of clients who let contractors attend Christmas parties and provide them equipment to fulfil their job e.g. providing them with a laptop.

 What does this mean when hiring interim staff within the Pharmaceutical industry? 

This change should not put companies off from hiring interim staff, should there be a requirement. However, before taking on a contractor, each case should be assessed to see whether or not a permanent employee could do the work. With the urgent need of vaccines and diagnostic screening for the UK market, never has there been a time to ensure our contractors deliver an excellent service and fulfil their obligations. Therefore the sooner they can navigate the contractor market thanks to IR-35, the better it is for all of our health.

 For more information on IR-35, or to get the full IR-35 brochure commissioned by Hyper Recruitment Solutions please click below

*IR-35 tips are provided on a non-advisory basis only