IR35 in the Private Sector - what end-hirers should be doing
A guest blog by Matt Fryer Compliance Director, Brookson Legal Services
The Off-payroll working rules from April 2020 consultation document issued by HMRC on 5th March 2019 (Consultation Document) reaffirmed that the Off-Payroll Rules, in force in the public sector, will be extended to the private sector from 6 April 2020.
Currently, in the private sector, contractors are responsible for assessing their own employment status. The effect of the April 2020 changes is that the medium and large sized businesses who use contractors (end-hirers) will need to identify impacted roles and assess the employment status of those roles to determine whether they are Inside or Outside IR35 this determination will directly affect the take home pay of the off-payroll workers performing those roles. It should be noted that existing roles which will run beyond 6 April 2020 will need to be assessed prior to 6 April 2020 in addition to all new roles commencing from 6 April 2020.
This assessment will involve considering they key employment status indicators such as substitution, control, financial risk and mutuality of obligation, along with several secondary indicators. This is a complex area and end-hirers should ensure that they have the relevant expertise in-house or are able to call upon expertise from an external service provider, to enable it to comply with its new obligations. Undertaking this assessment now will give clarity on potential exposure and allow time to plan for mitigating action to be taken.
In determining the IR35 status of off-payroll workers, there will be a responsibility on the end-hirer to exercise reasonable care, a blanket determination that all contractors fall inside or outside IR35, will not constitute reasonable care' and therefore this approach should be avoided. Failing to take reasonable care could expose the end-hirer to significant tax and national insurance costs as well as associated penalties.
It is therefore essential that end-hirers use this time leading up to April 2020 to put effective measures in place and to assess the employment status of their off-payroll workforce as failing to do so could meant that they find themselves faced with huge tax liabilities and penalties as well as commercial and reputational damage.
When the off-payroll working rules were rolled out into the public sector in April 2020 there was no requirement for the public sector body to volunteer how they had reached a status determination. As you can imagine, this caused a lot of frustration for impacted contractors. The Consultation Document includes a requirement to pass the determination AND supporting information down the supply chain. This will enable contractors to challenge the end-hirer's determination via an end-hirer lead challenge process.
This means that an end-hirer's obligation will not cease once a determination has been reached and they will need to ensure they have communicated the determination and the reasoning behind it to the correct parties. They will also need to manage their supply chains to ensure any impacted workers are not choosing to work via a non-compliant vehicle to recover or increase take home pay.
End-hirers must therefore also start to appropriately manage the expectations of their off-payroll workforce and work in conjunction with the supply chain if they are going to retain and continue to attract their services beyond April 2020. Those organisations who act too late and do not communication effectively about what measures it is intending to take run the risk of losing highly skilled workers, no longer being able to attract contractors resulting in reduced flexibility or increased costs and having to deal with employment rights claims.
There is lots to do in the run up to April 2020. Many end hirers are now well into their change management programmes; those who have not taken any action are now operating behind the curve and should look to act as soon as possible.
About Brookson Legal Services
Brookson Legal Services, the IR35 experts, is the only Solicitors Regulation Authority (SRA) regulated law firm that focuses on IR35.
Advising on IR35 since it was first introduced in 2000, Brookson Legal carries out thousands of employment status assessments each year. It works closely with hirers, recruiters, and contractors providing impartial advice and IR35 expertise to help both the public and private sector understand its IR35 obligations, and mitigate risk, whilst maintaining all the benefits that a well-managed flexible workforce brings.
For more information on Brookson Legal visit www.brooksonlegal.co.uk.