The IR35 reforms – 12 months and counting

The coronavirus has brought many changes to our working practices of late, one of which is a delay to the implementation of the IR35 reforms in the UK contracting sector. Right up to the eleventh-hour businesses were struggling with what the reforms would mean for them. Some had placed blanket bans on personal service company (PSC) engagements, while others were looking for potential workarounds. A few had been prepared to adopt the changes and had issued Status Determination Statements (SDSs) to their contractors. Whatever the case, it was clear that very few, if any at all, of the freelancers were happy with how the reforms were being managed by their clients and /or recruitment agents.

Despite the many man hours spent lobbying the government for a delay, salvation came because of the encroaching pandemic, and the implementation was postponed at the last hour until April 2021. So, what should business do to make the most of the next 12 months?

1. Act now. It became apparent through the 2020 “dry run” that waiting until the last moment to adopt changes because of the IR35 reforms was a terrible strategy. This resulted in the entire supply chain panicking and contractors prepared to walk away from their assignments — none of which needed to happen. With the correct preparation, businesses can continue to engage legitimate self-employed contractors through their PSCs after April 2021. They will also be able to transition contractors determined as “Inside IR35” to better suited engagement structures in a manner that suits all parties.

2. Review existing structures. It’s as simple as it sounds, but without knowing what you are working with, you cannot understand what you need to change. Do you have a handle on the number of contractors you are working with? Whether you are engaging their PSC or an umbrella provider? How long has each contractor been on the same site and/or assignment? Can the end client handle the contractor abruptly leaving the assignment? The list of questions are bespoke to each organization and there are no right or wrong answers but they will quantify the risks a business is facing because of the reforms.

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3. Design IR35 friendly practices. If you haven’t done so already, this is where you should engage professional advisors. It’s unlikely you will have the in-house skills needed for administering SDSs or to avoid the tripwires of “reasonable care.” Failure to manage either of these could leave you open to a future investigation from HMRC. Also, incorrectly determining talent as “Inside IR35,” resulting in contractor dissatisfaction, can be just as damaging to your business as mismanaging “Outside IR35” contractors. However, designing your new processes correctly will minimize the effects of IR35 reform, providing you the flexibility of engaging contractors as your business dictates.

4. Implement your strategy. Being proactive in your preparations to the IR35 reforms will enable you to choose when and how to implement your strategy. Your roll out method will be as individual as your business, but whatever you change will be lost, or forgotten, if you do not support it with a satisfactory communication strategy. Everyone affected must be aware of what is happening and who they can send their questions to. The message should be delivered several times and supported by an ongoing training regime.

You may struggle to find many supporters of the IR35 reforms with some industry commentators hoping to stop them from being installed altogether. However, I struggle to comprehend how they could be abolished since most will admit, perhaps in closed conversations, that PSCs are incorrectly allowing workers to be classed as self-employed. The treasury has some very big holes to fill in the governments purse and financial parity for all workers who are operating as employees is likely to be more positively received than not. In my opinion, anyone hoping the reforms will not be installed next year is either very brave or foolish. Given the level of attention the run-up to April 2020 generated, and the fact that HMRC was proceeding with the reforms, I expect there will be very little tolerance where industry is not prepared by April 2021.

However, there is no need to be afraid. Taking the correct steps, sooner rather than later, and your business will be ready in good time and contractors are likely to take kindly to your proactive approach, removing any risk of talent drain.

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Ray Walker

Ray Walker
Ray Walker is director of IF Contracting. His expertise lies in ensuring freelancers meet their worldwide tax obligations and maximize their earnings simultaneously.

Ray Walker

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