Getting IR35 right and using it as an attraction and retention tool

This is a guest contribution by REC business partner Brookson Legal

As we countdown to the implementation of the changes to the off-payroll regulations (better known as IR35) in April 2021, we have been working with the flexible supply chain to better understand how end hirers, recruiters and contractors are preparing for the change and what they have implemented so far to ensure that businesses get IR35 right!

What are the April 2021 changes?

From April 20201 the end hirer will be responsible for assessing all of their contractor’s tax statuses (whilst demonstrating ‘reasonable care’), as well as communicating the outcome with the supply chain and the contractors themselves. It will then be down to the ‘fee payer’ (normally the recruitment business) to deduct the relevant tax and NIC.

IR35 NOW is the Time research findings 

The results of our latest research report: “IR35 NOW is the Time” have been astounding and have made it clear that there are a vast amount of businesses that have still not started to prepare for IR35. The legislation was originally amended in April 2017 for the Public Sector and was due to be amended for the Private Sector in April 2020 before a decision was made to delay by 12 months, due to the Covid-19 pandemic. This has given businesses even longer to prepare and get this change to IR35 right.

Our research shows that many businesses have failed to prepare and risk talent drain throughout their organisation, with 38% of contractors we surveyed saying they would look into permanent employment if deemed inside IR35, as well as 50% stating they would request a rate increase and benefits in order for them remain in their role. It is important for businesses to consider the implications of losing key contractors, the delays this will bring to projects, the cost to increase rates and the additional administration and costs relating to hiring those contractors as full-time employees.

Getting IR35 right

Getting IR35 right will allow businesses to hire and retain contactors that are imperative to keep their projects on track. With 61% of contractors stating they would look for another role outside of IR35 if their client deemed them inside, it highlights the risk this could have on businesses if they take a ‘blanket ban’ approach or choose the wrong solution.

HMRC’s CEST tool is an option that can be used to avoid the ‘blanket ban’ approach; however, this has been criticised for not being fit for purpose which has been publicised recently with NHS Digital having made a provision in their accounts for a £4.3mil liability relating to IR35 after having used the CEST tool. It is even more of a concern that HMRC state 1/3 contractors are inappropriately completing their tax, but we have witnessed clients using CEST and getting 98-99% of roles inside of IR35, confirming how risky it is using an automated tool with no specialist advice!

Education is key when it comes to IR35. We have learnt that 55% of contractors felt that clients/ recruitment agencies were not doing enough to educate and engage their workforce, along with 76% declaring that businesses had not learnt from the Public Sector (2017) or the delayed 2020 changes. Now is the time to prepare and for businesses to educate their workforce.

Getting this wrong is not just the liability of unpaid Tax/NIC (which equates to approx. £10k per annum, per contractor based on a £40ph and a 12-month engagement). There are penalties on top of that, along with the administrative burden of dealing with contractor challenges, with 53% of contractors saying they are likely/very likely to appeal their client’s decision.

Communication and transparency is key

With an eyewatering 90% of contractors eager to assist their clients in the IR35 assessment process and in addition, 81% stating they would accept the determination if they have been involved, again reiterating the need to educate contractors and get the assessment process correct. It is very worrying that 80% said they have not been spoken to or engaged with by their client regarding IR35.

Getting IR35 right will gives businesses a competitive advantage over their competitors, allowing them to access the best talent at the best rates! If businesses get IR35 wrong and lose key contractors, it is going to be a financial and reputational business risk.

To read more on this topic download our latest research piece ‘IR35 Now is the time’.

If you are still unsure and need further support with IR35 please get in touch or register for on our FREE webinars!

This article was originally published by Brookson Legal. 

This is a guest blog contribution for the REC website. The views expressed by guest writers reflect the individual's personal opinions.