The 2018 Autumn Budget announced that the IR35 changes implemented in the Public Sector in April 2017, would be executed in the Private Sector in April 2020. So, what are the IR35 changes?
Currently, it is the responsibility of the director of the Limited Company (PSC) to ensure compliance with the IR35 legislation. However, on the 6th April 2020, it will become the responsibility of the end hirer to determine whether the services conducted by contractors fall inside or outside of IR35 and therefore the tax status of these off-payroll workers.
Whilst this new responsibility will of course pose various challenges to private hirers, taking the relevant steps early will not only reduce any compliance risk but can give you a competitive edge when attracting sought after contractors within the energy sector into your business. Below are the first steps hirers who engage contractors can take to help prepare for the 2020 changes.
EDUCATION, EDUCATION, EDUCATION
Whilst some hirers may be aware of what IR35 is, for many organisations there will be little or no understanding of what IR35 is. Although IR35 may be a relatively new concept to many end-hirers, the legislation is steeped in a history of case law, tribunal decisions, guidance and failed HMRC tools.
A CONTRACT YOU CAN COUNT ON?
One of the key foundations of establishing whether a contractor is inside or outside of IR35 is by the nature of the contract they are working under. A contract should set out the relationship between the parties and more importantly give an accurate reflection of how your workers are treated on a day-to-day basis.
Where you deem a contractor is outside of IR35 you should have a contract which adequately covers
If you use an agency to source your temporary staff, they may have their own contract in place. It would be prudent to request a copy of this to ensure that the contracts accurately reflect the working practices of the contractor.
HAVE A VIEW EARLY ON
The reason IR35 was introduced was to ensure that contractors working in a similar fashion to employees should be treated as employees for tax purposes. Whilst the process of determining the employment status of a contractor is a complex and challenging legal maze, some contractors will be inherently more at risk of falling within IR35. Identifying the roles in your organisation that are potentially high risk early on will ease the transition when the 2020 IR35 changes come into effect.
Why are they engaged? Are they engaged on a short term contract because you have a short term requirement for their skills and services, or are they engaged to cover a permanent employee? If they are simply covering the role of an employee and you treat them in a similar way to your substantive employees’, they could be captured.
Do you control them similar to your current employees? Contractors should be engaged on specific projects or ring fenced pieces of work. They should be told what is required at the outset and then use their own initiative and discretion to reach the desired outcome. If you control when they work, where they work and you can move them from one task to another they would be seemingly controlled in the same fashion as a typical employee.
Are you engaging with a person or a company? You should be engaging with a company for the services they provide. So long as the services are being performed by a capable person the company who you have contracted with should be free to utilise who they see fit. If you require the services to be performed by a specific person for the job this would be similar to an employment like relationship.
Is there an ongoing requirement where when one piece of work finishes you will direct the contractor to begin working on another? Contractors should be retained on a short term basis until the work they agreed to do is complete. If there is an expectation that work will be continually allocated to the worker and the requirement for their skills is on on-going requirement in your business this could be seen as a relationship more akin to one of an employer and employee.
DON’T GO THROUGH THIS ALONE
Educating yourself on what IR35 is and understanding some of the basic principles will definitely put you ahead of the game in the build up to the 2020 changes. Having a good understanding will be useful in your compliance with IR35 and more importantly your understanding of the risk involved.
However, whilst a good understanding will be useful, IR35 is a highly complex area of law. What an ‘employee’ is, isn’t thoroughly defined in any piece of legislation. Employment status is determined on a case by case basis using principles that have been established through a plethora of court and tribunal rulings. The application of these principles to a variety of different roles and circumstances is where the difficulty lies.
Brookson Legal services have more than 18 years’ experience of helping contractors through the IR35 legislation since its inception. We are an SRA regulated law firm who have sat on the HMRC IR35 forum.
Brookson are here to help hirers through this challenge and offer ongoing support to ease the burden of these changes. Our main message would be to seek professional help with a well-respected organisation who appreciate the challenges involved in reaching compliance with IR35.