With everyone’s focus firmly on Brexit, it’s easy to forget that HMRC is gearing up to introduce possibly the biggest regulatory change to the private sector in more than a decade.
The highly controversial revised IR35, which came into effect in the public sector in 2017, is set to become law in April 2020. Intended to prevent tax avoidance through the use of disguised-employment, the regulation puts the onus of determining the employment status of contractors on the end-user. Businesses must clearly demonstrate that there is no employment relationship between them and the contractor. Here are some key criteria for doing this:
- Mutuality of obligation
Here neither the client nor the contractor is obliged to continue offering/accepting contracts once a project is complete. If they were, it would be more reflective of a contract of employment, which would place the contractor inside IR35. (The terms inside and outside IR35 reflect whether the contractor is operating within the legislation’s cope or not.)
- Substitution
As above, your organisation is entering an agreement with a personal service company or private limited company, not an individual. If your contract states otherwise; that a specific contractor must see the project through, from start to finish, then it will likely fall within IR35.
- Supervision, direction, control
In cases where the client is dictating the parameters and patterns of the working relationship, for example that they must work on-site, on particular days, using company-provided laptops, etc, then the contractor is likely to fall within IR35. Contractors must have control over how they complete the project.
PREMIUM CONTENT: Guide to Implementing IR35 Off-Payroll Working Rules
While this may sound straightforward, the experience of the public sector with IR35 tells a different tale. A lack of clarity on the regulation in 2017 led to knee-jerk reactions from public sector organisations, with some going so far as to adopt blanket approaches by declaring all contractors inside IR35.
The result of this: Contractor walk-outs, major project delays and a dramatic rise in costs.
At Harvey Nash, we’ve been monitoring the sentiment of both contractors and HR professionals to the regulation in our IR35 Survey and sharing the information with participants to help them make more informed decisions.
Despite much continued uncertainty surrounding what final form IR35 will take in the private sector, there are measures your organisation can take now to minimise any downside resulting from the revised legislation.
Given the current economy, many more MSP and RPO clients have begun requesting alternative ways to source talent so they can remain competitive and compliant. Working with these clients, we are implementing varied sourcing and engagement paradigms. Amongst them are: “contractor audit” and “statement of work.” These solutions are more popular as organisations prepare for a world after Brexit and IR35.
To have your say and get a copy of our 2019 IR35 Report, click here to complete the survey.
