In April 2020, the world of contracting in the private sector will transform as controversial IR35 legislation comes into force. Responsibility for deciding whether a contractor engaged through a Personal Service Companies (PSC) should fall inside or outside of IR35 will fall on the end client. In other words, businesses will have to decide whether a contractor is a true contractor or an employee. This shifting landscape presents a huge administrative and strategic challenge to organisations across the UK. Off-payroll changes will have a significant impact on almost every sector, but the London IT contracting market is going to be particularly hard hit. With the industry engaging a huge number of contractors via PSCs at present. The complexity of IR35 legislation makes it tempting for companies to stick their heads in the sand, but failure to act now could put your business at risk of HMRC challenges and penalties.
So, how can you start to build off-payroll best practice in your organisation?
Build a Cross-Functional Team
IR35 reforms are complex and wide-reaching. They stretch beyond the responsibilities of one function or department. By including stakeholders from HR, procurement, legal, finance, and other key strategic areas at an early stage, you stand a much better chance of building an IR35 strategy that works. The very first step you need to take as a team is building an understanding of where and how contractors are engaged in your business.
A common problem for organisations struggling to get to grips with their IR35 approach is understanding where and how contractors are engaged. In large businesses with complex structures, this can feel particularly daunting. But visibility is key to your success here, even if it means unpicking historic relationships and trawling through old contracts.
Understand How HMRC Determines Employment Status
This is much easier said than done. The determination of employment status is complex, and there is no single set of guidelines that can be used to categorically determine status. You only have to look at the recent deluge of HMRC court cases to see that it is a subject that is open to varied interpretation. Control is one key test, and if you have significant control over a contractor’s day-to-day working practices, it is likely they will be deemed to be inside IR35. However, it’s vital to seek expert legal advice on the determination process and review the latest HMRC guidelines.
Build a Process and Educate Hiring Managers
Preparing for the upcoming IR35 changes isn’t enough. You need to build practices that will support your business into the future. This will ensure you are continuing to engage contractors safely and supporting those legitimately self-employed contractors that your organisation depends on. Part of this process is educating hiring managers at all levels. Building awareness throughout your business will lessen the risk of HMRC challenges.
Looking for support as you prepare for 2020? Cititec and Brookson Legal have partnered to create a complete IR35 solution. We can help you with every determination, supporting you with best practice and expert legal advice. We can even offer indemnity against HMRC challenges made on our determinations. Get in touch to find out how we can help you to get IR35 ready.