Five steps to survive IR3530/10/2019
By Chris White, Director at Sparta Global
It is just a few months until IR35 tax avoidance reforms are extended to the private sector. Under the new terms rolled out in April 2020, medium to large private sector firms will assume responsibility for determining whether the contractors they engage with should be taxed in the same way as salaried staff (inside IR35) or off-payroll workers (outside IR35).
In its most recent briefing document released on 22nd October 2019, the HMRC stated;
“This reform does not prevent people from working through their own limited companies and does not affect the self-employed. Contractors who are following the existing rules correctly will feel little impact, and whilst this sounds like a rather positive statement and a lot of private sector companies are aiming to do their absolute best in determining the IR35 status accurately, there is still a great ‘grey area’ in the liability chain and the main question – who is in charge of determining the status?”.
In response, a large number of firms are thinning out their contractor workforce and independent workers are being forced to wait and see how the organisations they engage with intend to respond to new responsibilities. Is this the only way to ensure compliance?
Here are my five steps for IR35 compliance success:
- Analyse your workforce
The new legislation offers the opportunity for organisations to audit skills across the workforce and begin the journey to more complete workforce visibility. To do this, you must first review your existing and contractual employees:
- Obtain copies of all supplier contracts for review
- Request a full list of workers from each supplier (include contract type and payment route)
- Refer to suppliers for details of their PSC and route of engagement
- Confirm whether all suppliers are equipped to make statutory deductions from PSCs
- Reach out to hiring managers and/or divisional HRs to label their contractors’ workforce
- Speak to clients/suppliers
This is a vital step to protect important business relationships.
Create a detailed communications plan that ensures all stakeholders are informed of the IR35 updates – as well as the potential impact and benefits of the legislative changes. Don’t wait until April 2020 to do this – open lines of communication now and help manage the transition by involving all parties.
- Communicate next steps to contractors
Though IR35 reforms will impact organisations that use contractors as part of their workforce, changes will inevitably hit contractors the hardest. Since the April 2020 deadline was set, contractors across the UK have been left to wait for the organisations they work with to map out their own plan of action. Whatever your organisation chooses to do – it is important to keep your contractors informed as soon as a decision is made. The fair treatment of your people - and honesty around IR35 - will make the transition as smooth as possible.
- Amend internal/external agreements
Any time new rules come into play, contractual compliance is critical. In the lead up to April 2020 – now is the time to get your house in order and amend working practices and agreements for the future.
- Confirm IR35 determination deadlines with hiring managers and suppliers
- Agree who will be responsible for determining the IR35 status of new requirements
- Review non-contractor recruitment options - do you have suppliers that can help facilitate other routes?
- Review contractor rate card with support from supply chain. Should it be amended for attraction purposes?
- Create and manage processes for future placements
It is important for organisations to not only plan for the immediate impact of IR35 reforms but to put the necessary frameworks in place to manage IR35 compliance in the future.
- Agree whether roles will be reassessed at any point (extension, change of cost centre / division, at a set tenure)
- Review written policies considering how these would impact contractor engagements
- Meet with hiring managers to understand how they engage with contractors and agree best-practice
- Re-write policies and educate community
The most important element of planning for the future, however, is ensuring your organisation’s talent pipeline does not disappear if contractors are removed from your payroll. Contractor suppliers remain a cost-effective business and technology skills resource for long and short term projects.
Sparta Global’s business model is the perfect way for clients to access the IT and business talent they need, without the risk of IR35 non-compliance. Our Spartans are employed full-time by Sparta Global - covering their industry training and at least two years of project work – and this means our Spartans are an IR35 compliant resource. Should our clients want to keep hold of our Spartans on a more permanent basis, they can be easily transitioned to permanent members of staff at the end of our 24-month programme.
If you want to find out more about IR35 compliance and how our Spartans can help you attain and retain the critical digital skills you need – get in contact today.