IR35 off-payroll working – Are you ready?

The IR35 off-payroll working rules are due to come into effect on 6 April 2021, having been postponed for 12 months due to the emergence of COVID-19. It was hoped that the Chancellor would announce a further delay to the implementation of these provisions (or an abandonment entirely) in the 2021 budget, however this has not been the case and businesses should therefore continue with and finalise their preparations for implementation.

The provisions apply where a business engages a worker through an intermediary company in which the worker holds a material interest (most commonly a personal services company ("PSC")). Detailed explanations as to the impact and effect of these provisions can be found in our previous articles here and here.  However in a nutshell, the impact of the revised provisions is to shift liability for determining the status of the individual contractor from the PSC to the end-user client and the responsibility for accounting for resulting tax and National Insurance contributions (both employer and employee) where the engagement is one of deemed employment, from the PSC to the 'fee-payer' (i.e. the entity immediately above the PSC in the chain of supply).

Status determination statements will need to be issued by the end-user prior to the start of any engagement after 6 April 2021 or, in respect of current engagements which will continue post 6 April 2021, prior to the first payment being made to the consultant on or after that date.

We anticipate that most businesses will have completed or at least significantly progressed with their preparations for the implementation of the new provisions. If not, however, we would recommend that you urgently:

Review your workforce

Consider how your current workforce is made up and the extent to which you rely on self-employed contractors. If you are utilising the self-employed, are these individuals engaged in their personal capacity, through a PSC or via an agency? It will be important to assess the extent to which the IR35 provisions will impact on your ongoing recruitment processes so that you can amend the same to ensure future compliance.

If you are currently engaging any contractors who provide their services (whether directly to you or via an agency) through an intermediary and will continue to provide their services beyond 6 April 2021, you will need to now consider the nature of the relationship and prepare a formal status determination statement. A copy of this should then be provided to the individual worker, the PSC and the entity with whom you contract in respect of the services.

It may also be necessary to renegotiate payment rates to account for any increase associated with having to make payment of tax and NICs (and the apprenticeship levy where applicable). The sooner you are able to assess your current engagements therefore, the better.

If the impact of the provisions will likely have a significant impact, consider alternative staffing solutions

Many large corporations (including Barclays, HSBC and RBS) have now implemented a blanket ban on the use of independent contractors. Whilst this will of course provide comfort in terms of the IR35 position, this cuts off a huge proportion of the labour market and particularly those with specialist skills who frequently operate as independent contractors and is therefore unlikely to be a pragmatic solution for a number of companies.

If the manner of your operations means that the engagement of contractors will likely amount to deemed employment, consider alternative options such as offering direct employment (permanent or fixed term); utilising the services of an umbrella company (who will essentially ’employ’ the contractors for the period of their engagement with you) and/or utilise agencies, who will be deemed the fee payer in the resulting engagements.

Should you wish to change the nature of your current engagements you will need to discuss and agree the alternative arrangements with your current contractors and ensure appropriate contractual documents are in place.

Ensure appropriate IR35 compliance procedures are in place and provide relevant training

Ensure there is an appropriate individual within your organisation who is fully briefed as to the requirements of the off-payroll working rules and is aware of and understands the requirements in respect of making a status determination statement. Consider providing and/or arranging relevant training in respect of IR35 risk and compliance obligations to key staff and those responsible for making status determination statements.

Whilst the government has an online tool (Check Employment Status for Tax (“CEST”)) to assist in making status determinations, it has been heavily criticised and often produces the incredibly unhelpful ‘unable to make a determination’ result.  Your appointed individual(s) should therefore be confident in being able to assess the engagements for deemed employment and we would recommend utilising a standard documented process, so that there is a paper trail evidencing ‘reasonable care’.  Arrangements should also be put in place to monitor and assess deemed employment status on an ongoing basis.

In addition, you will need to have in a place a formal SDS challenge process. We recommend setting up an internal email address to which all such challenges are directed, again ensuring that they are dealt with by a centralised function with knowledge of the statutory requirements.

Review and update your current standard contracts

We would recommend reviewing your standard consultancy and agency supply agreements to ensure there is appropriate protection included in respect of the IR35 provisions and to ensure the contractual documentation accurately reflects the reality of your working relationship with your contractors.  We would strongly recommend seeking indemnity protection in such agreements to minimise risk where possible

Review your internal infrastructure and payment processes

Where any contractor arrangements are considered to amount to deemed employment, the contractor will need to be added to the payroll of the fee-payer. The contractor will need to be issued with a starter checklist to provide the necessary information, including the declaration to determine their tax code (which will most likely be declaration C as the worker will have a primary employment with their PSC). When running payroll, the RTI flag should be set to show that the individual is an off-payroll worker.  Steps should therefore be taken now to ensure that your PAYE scheme is set up to on-board off-payroll workers as required.

Should you have any questions in respect of the points raised in this article or require any assistance in finalising your preparations for the introduction of the off-payroll working rules, please do not hesitate to contact us.

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