If you operate within the temporary staffing industry, you’ll be aware of IR35 and its impact on contracting moving forwards. The legislation is due to commence in April 2021, so it’s crucial to make sure you’re prepared for the changes. If you’re still unsure about what it will mean for you, here’s everything you need to know about IR35.
Below, we’ve listed six ways to make sure you’re ready for the changes – whether you’re a recruitment agency, umbrella company, or end client.
1. Audit your organisation
Unfortunately, there’s no compliant shortcut when it comes to IR35 determinations. This means you need to review all the workers on your books to work out who the legislation applies to. If you make blanket applications, HMRC will consider this as a deliberate attempt to avoid the legislation – and you may be hit with penalties.
Think about the following points:
- Which workers are inside IR35 legislation?
- Who is responsible for making IR35 status determinations in the supply chain?
- Who is responsible for tax deductions and payroll?
- Considering the above, what is your responsibility in the supply chain?
2. Create a plan of action
Due to the level of care you need to take to ensure each worker has a determination status, you need a strategy to ensure nothing is left behind. Based on the findings from auditing your organisation, you’ll need to put plans in place for responsibilities. This will include how you plan to tackle your duties in a compliant manner – whether that’s determining statuses or paying workers.
Invest in an IR35 determination tool
HMRC’s free Check Employment Status for Tax (CEST) tool is a great place to start in understanding whether someone is or isn’t outside of IR35. Understandably this tool is only indicative and not underwritten by insurance This means if the determination isn’t correct, you could be penalised regardless.
As IR35 is legislation that’s here to stay, it’s important to consider a better way to determine the status of workers. Tools like PSC Guard have human intervention and use the knowledge of compliance experts to make a confident determination, while providing support in the rare event it’s challenged by HMRC.
An added benefit of using a tool is that it’s a selling point and trust signal for contractors who seek confidence in their determination.
3. Review your payroll
Not only do you need to review your existing workers, but your software too. As the legislation directly impacts pay and tax deductions, your payroll software must be up to date with functionality that ensures correct payments and payslips. Find out how your payroll software provider plans to tackle this as soon as possible.
Another consideration is that the market is likely to see a surge in umbrella uptake due to the employment structure. For umbrella companies, this increased demand means your payroll solution should scale seamlessly and do more of the work for you. Codapay’s umbrella company payroll software is designed to do exactly that – and much more.
4. Communicate with everyone involved
Depending on where you sit in the supply chain, there will be various parties you need to share your plans with and vice versa. This may include:
- Contractors
- Agencies
- Umbrella companies
- End hirers / clients
- Stakeholders
Most importantly, contractors must be informed on the steps you’re taking to stay compliant. For example, if you’ll be using IR35 determination tools, they’ll be involved in the process. Contractors may want to discuss their rates also, as some may increase them to counteract the deductions that come with being inside IR35.
If you operate as an agency or umbrella company, you’ll need to find out what measures your end hirers will be taking. For example, will rate increases be agreeable for the contractor, and will they have any role in determining status? Some end hirers may look to make role-based assessments – however, as mentioned previously, these should also be considered on a case-by-case basis.
Consider recruitment procedures
Be aware that status determination is always the responsibility of the end-hirer. However, they may work closely with agencies to support this decision.
5. Update agreements
Ultimately, the way you work within the contracting industry will change after April 2021. This means you’ll need to update any agreements for new contractors to reflect this. Plus, you may need to update existing contracts to ensure they include any relevant clauses relating to IR35.
6. Book a training session
As IR35 slip-ups can lead to costly penalties, relevant staff should be trained and provided with handy documentation. This may include payroll, HR, recruitment agencies, and anyone who’ll have any dealings with the contractors and determinations.
You can book training via webinars or personalised sessions with a consultant. Ensure the company you choose is an established leader in the industry, as IR35 is vital to get right. Regardless of how prepared your team is, it’s a good idea to brush up on the details prior to the implementation date.
We’re here to help our clients with their IR35 plans. Codapay is designed to support the changes – and we’re also working alongside legislation experts at to ensure correct determinations are made. If you’d like to find out more, get in touch and we’re happy to point you in the right direction.
