The New Year is well and truly underway, and for UK employers and contractors, the upcoming rollout of IR35 reform in the private sector is certainly front of mind – or at least it should be.
While the delay to the original launch date in April 2020 provided a temporary reprieve from IR35 activity for recruitment agencies, contingent workers and the rest of the external workforce supply chain, the new deadline is fast approaching.
IR35 is a complex topic and we know that many businesses in the UK have been investing time and money over the last two years to ensure they keep their highly valuable external workforce engaged compliantly. For many, though, preparations were temporarily put on-hold amidst the global pandemic as attention turned to surviving the impacts of national lockdowns.
And while the UK is back in a national lockdown, the IR35 deadline is now approaching fast. Although there may be rumours that a further extension will be granted, the chances of this are relatively slim and for businesses already facing COVID-related disruption, the risk of a ‘wait and see’ approach simply isn’t sustainable.
In our latest blog, we revisit the off-payroll discussion and outline some of the key considerations for employers engaging contractors past 6th April 2021.
Taking an approach that maintains contractor relationships
We know from experience that IR35 will have an impact on engaging contract professionals compliantly in the future – we just have to look at the historical effect on the public sector to see why it needs to be carefully managed. Arguably, one of the biggest challenges will be maintaining a good relationship with contractors both during and after the roll out.
Those individuals that make up the contingent workforce have, in most instances, chosen this option due to the flexibility it allows, in both the management of their Personal Service Company and the delivery of their services via it. As a result, they are likely to challenge or at least be highly concerned if a client’s status determination statement (SDS) states that their work falls within IR35 and that they are, as a result, subject to the deduction of PAYE Tax and Employee’s National Insurance as permanent employees.
It is a difficult balance, but if the last 12 months has shown us anything it’s that the contingent workforce – including contractors – is hugely valuable for future-proof businesses. As a result, the relationship with this audience needs to be carefully managed over the coming months. Clear, transparent and timely communication with contractors and the supply chain is vital.
Outcome-led Statement of Work (SoW)
The complexity of IR35 is, however, further exacerbated by the different ways that contractors can be engaged. In particular, there is the assumption that engaging workers under an SoW removes Off Payroll requirements. However, this isn’t correct and, in fact, the liability will simply be moved down the supply chain. If there’s no difference in how a business will be procuring the services, then the worker’s employment status will be the same.
As a brief explanation, under an outcome-led Statement of Work contract, an employer engages a service provider to complete a project, including the supply and management of any contract staff.
As such, the individual or service provider controls how the work is delivered, rather than the end client. Under a true SoW, the end-business that the work is delivered for will likely have limited interaction with the workers. Subsequently, the obligation for determining the IR35 status of a contractor providing services under a Statement of Work will move from the end client to the service provider. However, this does not mean that the outcome of a contractor’s IR35 status determination will be outside IR35 simply as a result of the implementation of a SoW model, but the obligation for assessment and the risk posed to the client of making an incorrect determination can potentially be lessened.
It’s important to add, though, that if workers are not engaged under a true Statement of Work, the associated risks can be felt across the entire supply chain, so ensuring your solutions are compliant as either a client or supplier really is vital.
Knowing where liability lies
Of course, the biggest concern for everyone involved in the engagement of contractors is the issue surrounding liability. While due diligence in regards to any compliance requirement when engaging the external workforce is a must, with IR35 rules the liability can be passed down the supply chain. As a result, vendors and staffing companies can face covering the cost of perceived lost taxes due to an incorrect status determination, even if they had no involvement in the assessment itself.
While this is certainly a frustration for many involved in engaging contractors, it does highlight the crucial need for collaboration and information sharing across the entire supply chain, to ensure all parties are operating compliantly.
Your workforce solutions provider will certainly be able to steer you in the right direction regarding IR35 preparations, but if this discussion hasn’t already begun across your vendors and talent partners, it really is crucial to fast-track this as soon as possible.
IR35: Contingent workforce preparation for the year ahead
IR35 is a highly complex topic and although the above provides some information, it is by no means an exhaustive guide and we certainly advise seeking expert support to ensure any action taken is carried out compliantly.And while we recognise that the off-payroll rules are being rolled out to curtail perceived tax avoidance, it will cause some disruption across the entire supply chain. Careful planning is going to be critical to not only ensure status determinations are made both promptly and accurately, but also project activity is designed to minimise the risk of losing key skills and knowledge from the workforce. Establishing compliant processes that continue to allow access to a flexible and talented contingent workforce will be key.
And, of course, for those who work with an MSP, the IR35 burden will be shared with this partner, which will certainly help to alleviate many concerns. At Guidant Global, we’ve been help guide our clients and suppliers through this process for some time now – with the assistance of our partner tax consultancies – and will continue to support them as into the roll out date and beyond as they continue to adjust to the new requirements.
If you’re concerned about how your contractors and contingent workers are engaged, contact us today for more advice.