Don’t leave IR35 to the last minute
IR35 is fast approaching and if you’re a hirer of a medium or large private sector organisation, it will affect you. It’s important that you have made all of the necessary preparations before the new legislation comes into effect on April 6th 2021 to prevent any hold ups on projects and to mitigate tax risk.
Don’t underestimate the end-to-end process
It may seem daunting, as the IR35 audit process can be quite lengthy and requires a certain amount of effort and understanding to get right, but the best way to approach it is with enough time. The end to end audit process can range from weeks to months by the time the evidence has been gathered, a determination made and this decision communicated to everyone in the supply chain. Underestimating IR35’s complexity could lead to failures.
Five steps to IR35 success
Starting early and navigating the following steps will ensure reasonable care is taken and your business is not left with avoidable tax risks.
Identifying the off-payroll population
The first thing to do when tackling IR35 is to identify the contractors working for your business, as they will potentially be affected by the changes in the law. These are the members of the workforce who are providing services to you through their own limited company or personal service company.
Pulling together all the relevant information and documentation
A key element of the IR35 legislation is that end-hirers need to be able to show they took reasonable care in making their determination. If in the worst-case scenario, the determination is wrong, they will be protected if they can demonstrate that they took reasonable care when deciding a contractor’s status. This makes it important to preserve evidence of the decision-making process in case anything is brought into question later on.
Documentation and information gathered from the relevant parties will form a large part of this. It’s important to bring all of this together at the beginning, so it’s clear and to hand as you move on to the next steps of the process. This will form the basis of your assessment and help you create the Status Determination Statement (SDS).
It will be up to you as the end-hirer to determine whether a contractor is working in a self-employed manner and therefore considered outside IR35, or as a disguised employee and as a result, inside IR35. In order to make this assessment, you must take many factors into consideration, including the information and documentation you gathered earlier, with a particular focus on day-to-day working practices and the contract governing the assignment.
Once you’ve made your determination, it must be presented as an SDS and communicated to all relevant parties within the supply chain. This will include the contractor and the recruiter, if there is one. A new SDS must be issued for each job, even if the information and determination has not changed.
Agreeing alternative ways of working
For the IR35 process to work smoothly within your organisation, it’s vital you establish working methods early on and test them to remove any teething problems. Once the new rules come into force, all staff members should understand their responsibilities and be able to move through the procedure with ease.
Rash decisions could lead to a lack of reasonable care
Lack of preparation is likely to lead to decisions being rushed and an inability to demonstrate to HMRC that reasonable care was taken. This can leave your organisation open to tax risks, losing contractors and unable to attract new workers. To avoid this situation, start putting IR35 processes in place now.
Don’t leave it too late. Get in touch with Brookson Legal, the IR35 specialists, to start preparing today!