Part 1: Use IR35 To Your Competitive Advantage with IR35 Complete
Tip #1 MANAGING RISK TO YOUR AGENCY
At JSA, compliance is always top of our list, and the upcoming IR35 reforms are no different. That’s why we’ve developed a mini-series of three top tips for agencies who are looking to make the most of changes to the off-payroll reforms in the private sector with early preparation.
Tip #1 Managing Risk To Your Agency.
Although COVID-19 has meant that the IR35 (off-payroll) reforms have been postponed until next year, it’s never too early to start preparing your agency and contractors for the upcoming changes.
While we understand that this is a complex issue that could take time to manage, we advise you not to wait until next year to prepare. This is because the earlier you, as a recruitment agency, can start preparing for the upcoming changes, the better positioned you’ll be next year to avoid compliance headaches.
Under the new rules, contractors will no longer be responsible for their IR35 status and tax payments. This liability will shift to the end hirers (unless they qualify as ‘small’), though HMRC have made it clear that they will often look first to collect any unpaid taxes from employment agencies. This leaves your agency open to two key financial risks:
Risk 1 – End hirer makes an ‘outside’ IR35 decision
The first risk you may face is that your agency receives an ‘outside’ IR35 decision from the end hirer for a specific contractor. While continuing to engage ‘outside’ contractors where possible is the ideal outcome, it also presents a risk for your agency because liability for unpaid tax, if the ‘outside’ status is successfully challenged by HMRC, will sit first with the organisation that paid the contractor’s limited company, and then with the top agency in the supply chain.
To mitigate this risk from HMRC, it’s important that you prepare your contingent workforce by making them aware of the upcoming reforms and conducting individual assessments. JSA’s IR35 Complete assessment tool can assess cohorts of workers within minutes, providing you with the option to insure any ‘outside’ outcomes. It may also be appropriate to amend contracts or working practices for contractors, so that they can continue operating ‘outside’ IR35 compliantly. You have time to do this, if you begin preparing now.
Risk 2 – End hirer makes an ‘inside’ IR35 decision
The alternative risk you may be concerned with is large numbers of contractors receiving an ‘inside’ IR35 status. Although this will mean you and the end hirer won’t face risk of compliance challenges from HMRC, it could result in a dissatisfied contingent workforce. Contractors who are newly ‘inside’ IR35 will have to accept lower take-home pay or you may need to pay them more to retain them.
If valued contractors are newly ‘inside’, preparing early gives you the time to reach out to them and understand whether they’re likely to move elsewhere in search of an ‘outside’ contract. If you believe this to be the case, your agency can avoid losing talented workers by helping them in their search for an ‘outside’ contract in preparation for April 2021.
How we can help
While it is important to be aware of the risks posed by the new legislation, it’s important not to shy away from the reforms. If you begin preparing early, you’ll have peace of mind that by April 2021 your agency has successfully mitigated the impact of the reforms and you’re confident that your contingent workforce is satisfied and operating compliantly 100% of the time.
At JSA, we offer sample assessments which can help to give you a snapshot of the likely situation come April. This will provide your agency with the opportunity to alleviate risks of disrepute or loss of contractors. As we move closer to April, you’ll have time to look at each individual’s circumstances, explain their new situation to them, and advise them on potential working options.
Alternatively, if you find a large quantity of your workforce has received an ‘inside’ IR35 SDS, but you don’t have the desire or capacity to operate in-house payroll, finding this out ahead of time will also help you to arrange an alternative solution that can keep your agency running smoothly. We offer PEO (outsourced employment) and Umbrella solutions to help you reduce costs – allowing you to focus on your core activities.
No matter the situation, with the time available, we can help you to collaborate with contractors to manage the reforms effectively, meaning everyone is satisfied that they’re being treated fairly, while you’ve got peace of mind that your contingent workforce is operating compliantly.
To find out more tips about mitigating risk and turning IR35 into a competitive advantage, including helping your end customers prepare and earning the trust of your contractors, keep an eye on our blog for further updates.