If you hire contractors (or you are one), unless you’ve been living under a rock for the last decade, you’ll know about IR35, the legislation that aims to ensure contractors pay the right tax. And now, changes to the rules are coming to the private sector from April 2020, leaving many businesses unsure of how they’ll be affected.
Contractors providing services to clients through an intermediary (usually their limited company) but acting like employees, fall ‘inside’ IR35 and are charged the same tax and national insurance as employees on the payroll. While the legislation has been around since 2000, the rules changed significantly in 2017 for the public sector, with the onus to prove self-employment status shifting from the individual contractor to the hiring organisation. These changes are now being rolled out to the private sector next year.
The changes have been widely criticised for the additional admin for businesses, and potential stifling of IT talent when the UK economy needs it most. For companies, hiring contractors directly becomes riskier, since hiring organisations can face fines for incorrectly identifying an IR35 contractor as an ‘outsider’. As a result, many public bodies such as the NHS, HMRC and the MoD, have ceased using limited company contractors since 2017. The changes are likely to result in increased complexity (and therefore cost). In addition to the legal costs necessary to ensure compliance, paying off-payroll workers invoices require accounts payable software and payroll software to integrate correctly, meaning that many businesses will have to invest in IT infrastructure programs to develop this functionality.
So what can firms in the private sector do to prepare? Firstly – assuming it would be detrimental to business to stop using contractors – it’s crucial to understand the legislation and your responsibilities if you are hiring contractors directly, including any changes you need to make to your IT infrastructure to ensure correct reporting of contractor payments. It’s also worth seeing if you can reduce risk by working through a trusted agency, who as the ‘fee payer’, assumes liability for determining IR35 status.
At Expand we’ve been working in the contract recruitment market for two decades, and adapting to many changes over the years. If you hire contractors, and are worried about the implications for your business, then we can help. Contact one of our specialist consultants today for an informal discussion.