IR35 Changes in the Private Sector

IR35 Changes in the Private Sector

Despite the ongoing pandemic, much attention has finally turned to the imminent threat of IR35 in the private sector. IR35 has been around since 2000 but was reformed in 2017 to put the onus on the end customer – and at this time was just aimed at public sector bodies. Fast forward 18 months and the decision was made to roll the changes out across the private sector too. These changes were planned for 2020, but were deferred a year until this coming April, 2021!

The Intermediaries Legislation, known more commonly as IR35, is tax legislation which focuses on compliance of off-payroll working. It was announced as part of the government’s aim to eliminate the avoidance of tax and National Insurance Contributions (NICs) by limited company contractors, also referred to as Personal Service Companies (PSCs). Since the liability (and decision) now rests on the end organisation to determine the IR35 of any temporary worker, there is a lot of risk and pressure to get it right. Those organisations affected include large or medium-sized businesses that have (two of) ￡10.2M or more in revenue, 50 employees or more than ￡5.1M on their balance sheets.

When we saw IR35 reformed in the public sector a few years back, many organisations opted for a blanket ban approach on contractors, in a knee jerk reaction. This is against policy that ‘reasonable care’ must be given, and on a case by case basis and led to severe skill shortages and gaps across numerous departments. Other organisations resigned to paying almost double for the same skills, merely to ensure that the worker came out with the same money after tax ‘inside’ of IR35. These lessons learned by the public sector should hopefully lead to fewer problems in the private sector. But it still begs the question as to why many firms don’t acquire contractors properly, how they were originally designed to operate; to deliver the work in question!

If you bring in an external contractor to deliver a specific piece of work, there should be no reason they would fall foul of IR35. You simply need to trust them to do the job. Deliverables and timescales are agreed up front, and they only get paid as and when these are hit. They can work wherever they like, whenever they like and using their own materials. As long as they complete the job on time and to standard. They must not be allocated further bits of work outside of the project, asked to assist in other areas or given any overtime. They are also usually not entitled to normal staff benefits, such as holidays, staff parking and perks/discounts. They are also under no control or direction. They have been brought in for their expertise and are given free rein to complete the project as they see fit, or as agreed upfront. If they are unable to complete the work, or need assistance, they are able to bring in a named substitute to help at no extra cost. Such a contractor would be ‘outside’ of IR35.

On the flip-side, and example of a temporary worker falling ‘inside’ of IR35 could be someone doing a BAU role short term (such as service desk) or covering someone on maternity leave. However, any contractor who is working under direction of a hiring manager, using assigned tools and working as and when they are told will fall ‘inside’ anyway. Hiring managers must understand the laws of engagement if they want to appoint external consultants for pieces of work.

Failure to prepare could result in mass fines, a detrimental effect on industry reputation, poor coverage in the media, court prosecutions and a loss of interest from the contractor population. Private sector organisations must start preparing their strategy and approach now if they are to avoid a skills gap in their workforce in 2021.

To ensure that projects are completed without falling foul of IR35, there are also a number of other ways to engage external talent that can be adopted. The most common of which being a consultancy agreement. By giving projects or programmes of work to external consultancies, not only is risk minimised, but the liability also switches to the company providing the consultancy. However, they are almost certainly going to ensure that they have their own backs covered and are operating within the law. Much like the example given above for contractors working independently, the consultancy will work to an agreed list of deliverables and workers will not be seen as employees of the end-client organisation.

Here at Accessplc, we have taken on fixed price deliverable work through both our Framework Consultancy Agreement and Statement of Work (SoW), from one resource and a ￡20K budget up to ￡14 million and 95 assigned resources. Companies trying to dress up standard recruitment services as ‘consultancy’ and as a way around IR35 will soon be found out. We are able to offer these services through the consultancy side of the Accessplc business, and we have robust contracts to reflect our business model and way of working.

If you’d like to hear more about these services or just want some help and advice understanding IR35, then get in touch today!