Make no mistake; the issues surrounding IR35 have not gone away. The problems around Covid have been on all our minds for months, and whether we’re in or out of lockdown, it is still taking up most of our headspace. However, as we potentially head back to some sort of normality, we need to be wary not to forget all those things, including the IR35 changes, that were heading our way before the pandemic.
The potential impact of IR35 is still there, and it is going to be just as confusing and difficult to implement as it was going to be last April. In a relatively short time, there will be the need for any agencies that supply non-permanent staff to deal with a range of workers using a variety of different models of engagement. If you get it wrong, the consequences are likely to be pretty dire for you or your client.
As you probably already know, IR35 is basically a set of tax regulations that were first introduced over a decade ago. In essence, their purpose is to differentiate between contractors who are engaged in variable contract business and those who are effectively working as employees but under a limited company status. In 2017 the regulations were re-jigged using what is known as the ‘off-payroll reforms’ although most people still refer to them simply as IR35. The change meant that it was down to the ‘employer’ to decide who was and was not within the IR35 remit. If they got this wrong, there were considerable financial responsibilities to be met. Initially, this was introduced in the public sector only. Many people felt it was unclear, rushed, unworkable and confusingly vague in implementation.
In April of 2020, similar rules were due to be introduced into the private sector, and again the backlash was considerable. Dealing with what constituted someone being ‘effectively an employee’ in the public sector was difficult enough, but the implication for the myriad of different business types in the private arena is huge.
IR35 will be back soon
Due to the impact of the pandemic, the expansion of IR35 was held back for a year. Keep in mind this was a delay only. In April 2021 IR35 will be introduced again, and it will be down to the businesses that contract their teams to decide if the rules apply or not.
If it is later deemed by HMRC that the contractor meets the criteria for an employee, then the supplying business, not the contractor, will be liable for any financial implications of this, including outstanding tax and national insurance. While this should be a reasonably simple formula, it only takes a moment of consideration to realise how complex it actually will be. Some things, for example, the hours worked being dictated by the employer and working on-site would seem to be an indication of employment. However, what if the contracted working is performing a role where they would need to attend the site and that access requires working during opening hours? One potential filter is that the contracted worker can substitute for another worker from within the same company. All good until you remember that many contractors and freelance workers are there to perform specialist jobs so there simply may be no substitution possible in any practical way.
Even from this oversimplified overview, it is clear there are going to be issues with the introduction of the new IR35 system in April next year. At the time of writing that is less than eight months away.
What this all boils down to is that anyone responsible for the supply of contracted workers is going to be facing a payroll problem complicated by a range of compliance requirements and different working practices.
Octopaye offers easy to implement and cost-effective payroll solutions. They will help ensure you comply with legislation and give you the peace of mind that things are ticking along nicely behind the scenes and your workers are being paid as they should be. Our cloud-based solutions are recognised by HMRC, and we are here to help you make sure your teams are paid on time, every time in the right way.
https://www.gov.uk/guidance/understanding-off-payroll-working-ir35
