Six Areas Affected by IR35 Legislation

 

The new IR35 rules have now been published in the Finance Act 2020 and will apply from 6 April 2021. Here’s a rundown of six areas to be aware of:

1. Employers’ national insurance contributions will also be due on the contractor’s pay so agencies will have to negotiate with both clients and contractors how this will be covered, whether in existing charge and pay rates or whether there will be an increase in rates.

Note the employment allowance can only be used to offset the employers’ national contributions relating to its directly employed staff and not payrolled temporary workers/ contractors.

2. From 6 April 2020 agencies will have to provide a Key Information Document (KID) to all work seekers before they sign on with the agency ¹. In particular, this will require detailed pay information about what an individual might earn in an engagement. Clearly the net rates of pay will differ significantly between an inside and an outside IR35 decision.

Further information on the KID is available in the REC’s Good Work hub.

3. Those agencies who bring inside IR35 contractors onto their own payroll will see their apprenticeship levy bill increase or indeed, may be brought into scope of the apprenticeship levy for the first time. Either way, the agency will have to determine how it will pay its apprenticeship levy bill, including for example by increasing its charge rate to the client.

See the REC’s campaign for reform of the Apprenticeship levy.

4. Holiday pay, sick pay etc. – HMRC has repeatedly said that being inside IR35 does not affect employment rights and the Government has separately agreed to look at closer alignment of status for tax and employment rights purposes. Meanwhile, an individual’s entitlement to worker rights will depend on how they are engaged:

• If an individual continues to work through a personal services company (after the appropriate deductions have been made) the personal services company will be responsible for any worker rights, including holiday pay and sick pay.
• If an individual is engaged on a contract for services and the agency then payrolls them, the agency will be responsible for workers rights.
• If they are engaged through an umbrella, the umbrella will be responsible for their worker rights.

5. Pensions – an agency will not be required to auto-enrol an off-payroll worker for pensions purposes if they continue to pay their intermediary (after the appropriate deductions). Nor will they be required to deduct or contribute to an individual’s private pension. However, if an agency moves an off-payroll worker onto a contract for services and directly payrolls them, then that individual will be a worker for employment rights purposes and will be entitled to be auto-enrolled for a pension when they meet the relevant criteria.

The agency will also have to pay employer’s pensions contributions, thus increasing the charge rate to the client. If an agency worker is engaged by an umbrella, the umbrella will be responsible for pension’s auto-enrolment (though that may also require an uplift in charges).

6. Insurance and indemnities – no doubt all parties will try to limit their risk and exposure by requiring others to give indemnities and/ or relying on insurance. REC has always recommended that agencies should not give indemnities to another party to cover that party’s own statutory obligation. After all, the agency does not have control over whether the other party does what they need to do. So agencies should always check if their insurers are prepared to cover any indemnities requested. Separately, an agency may wish to purchase additional ‘IR35’ insurance but always read the detail very carefully. What is excluded, e.g. will the insurance payout on unpaid tax and NICs, or fines or just the costs of dealing with HMRC or a tribunal? What are the upper limits to that insurance?

 

You can find further IR35 support, including our comprehensive member guide on our dedicated IR35 hub.

 

Notes:

1. New Regulation 13A of the Conduct of Employment Agencies and Employment Businesses Regulations 2003.