Navigating Off-Payroll to stay on course for business success.
Dave Chaplin is CEO of IR35 compliance solution IR35 Shield and author of IR35 & Off-Payroll Explained. He is chairing a BFI panel debate on IR35 Post Implementation Compliance for Employers on June 17th that will focus on the practice and practicalities facing firms under the new IR35 rules.
April 6th has come and gone, leaving in its wake the new Off-Payroll tax rules. And, despite a lot of warning, and an additional year to get prepared due to a global pandemic, many hiring firms left it until the last minute and now find themselves all at sea and struggling to navigate the choppy waters of the sequel to IR35. Here is Dave Chaplin’s advice to help firms steer a steady course.
Who are your limited company contractors?
Since the new tax rules came into effect, firms might find that a number of individuals who make up their contracting workforce have upped and left, and those that have stayed and are ‘inside IR35’ will certainly be looking to move on, if they can, to ‘outside IR35’ engagements.
Some projects may have come to a grinding halt, just like when the legislation took effect in the public sector in 2017. Therefore, firms should now establish the impact on their projects and genuine status of contingent workers so that their businesses can regear for the new normal.
Firms who ran blanket bans or did not treat contractors fairly will find themselves at the back of the queue and will have to work harder to attract talent, or simply pay more for the same level of expertise.
Adopting a quality Off-Payroll compliance solution is crucial. This helps identify engagements that are caught within the legislation and can also inform the practicalities of redesigning engagement strategies and working conditions to engage workers on a genuinely self-employed (‘outside IR35’) basis.
Using the adopted compliance solution, hirers should assess their contractors based on the contract and the working conditions. The result will be key in informing the next steps, and help answer questions such as:
- Which contractors could be hired on an ‘outside’ IR35 basis?
- Which roles are more likely to be akin to employment, where on-payroll is required?
Look at all scenarios
Having sought answers to the important questions, hirers will be ready to establish a long- term plan. They might find that certain policy changes to contractor working practices are enough to mitigate IR35 risk effectively, enabling some contractors to operate ‘outside IR35’.
Of course, any changes made must be realistic, rigorously applied in practice and reflected in newly drafted contracts. Any contractual amendments that are simply window dressing and not part of the true agreement between the parties are unlikely to provide much of a defence should things proceed to a tax tribunal.
Continued compliance
Off-Payroll compliance is an ongoing process. Ongoing monitoring of the workforce is necessary to ensure that working practices always reflect the written agreements. Regular checks should be made to ensure that the engagement has not fallen ‘inside IR35’, and also to gather vital evidence that can be used to reinforce the original determination at a later date.
Insuring against tax risk
Firms cannot insure against the non-payment of tax, in the same way that one cannot insure against a speeding fine. Those firms that are concerned about the possibility of being struck by the equivalent of tax lightning should at least cover themselves with tax investigation insurance to help cover the costs of defending a position against HMRC. However, any insurance product must be underpinned by a robust compliance process.
Different groups of contractors will carry different levels of risk and exposure. This is like insuring a fleet of Ferraris versus a fleet of Minis and any insurance should be priced around the measured reality for each situation. A one size fits all approach doesn’t make commercial sense.
The holy grail of Off-Payroll compliance
In this “new normal” of Off-Payroll working, adopting a compliance-led approach and continuously monitoring and assessing the contingent workforce is the only way for firms to ensure they are best placed to choose from the front of the talent queue and access the best contracting talent they need. Hirers and contractors must work together to ensure their working relationship remains ‘outside-IR35’ and carry out this five-point plan:
- Assess IR35 status comprehensively
- Ensure the contractual terms align with the relationship
- Agree and sign a Status Determination Statement (SDS)
- Make sure the engagement operates in alignment with the original intent
- Monitor and collate supporting evidence throughout the contract.
In time, the dust will settle. Once more firms begin to test the water by engaging limited company contractors, others will have to follow, recognising that contractors provide vital skills on an ‘as needs’ basis that they cannot do without.
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Don't miss out on the chance to hear from Dave and our panel of IR35 experts on June, 17th 2021.