How to get IR35 right and use it as an attraction & retention tool
As the clock ticks down to the implementation of the changes to the off-payroll regulations (better known as IR35) in April 2021, we have been conducting regular surveys with the flexible supply chain to better understand how clients, recruitment agencies and contractors are preparing and how they are likely to react to the changes so that businesses get IR35 right!
A quick recap of the changes due in April 2021; The end-hirer will have the responsibility to assess all of their contractor’s tax status (whilst taking ‘reasonable care’) and ensure that they have communicated that decision with the supply chain and the contractors. It will then be the responsibility of the ‘fee payer’ (normally the recruitment business) to deduct the relevant Tax and NIC.
Our Research Findings
The results of our latest research report: “IR35 NOW is the Time” have been astounding and I am still shocked at how many companies still have not started to prepare for the changes to IR35. The legislation was 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 means businesses have now had years to prepare and get this change to IR35 right!
Businesses that have failed to prepare risk a talent drain across their organisation, with 38% of contractors in our survey stating they would look for permanent employment if deemed inside of IR35 and 50% stating they would request a rate increase and employee benefits in order to remain in the role if deemed inside! You need to consider the cost implications of losing key contractors, delays this will bring to projects, costs to increase contractor rates, and the possible additional administration and costs relating hiring these contractors as full time employees (employee benefits), especially given the current economic climate and pandemic!
How to get IR35 right
Getting IR35 right and preparing for the change will allow your business to hire the best talent and retain the contractors that are imperative to keep your projects on track. In our survey 61% of contractors said they would look for another role outside of IR35 if their client deemed them inside, highlighting the risk to your business and projects if you take a ‘blanket ban’ or choose the wrong solution.
HMRC’s CEST tool is one of the options you can use to avoid the ‘blanket ban’ approach, however the pitfalls of this are now well maligned and publicly available! NHS Digital have recently made a provision in their accounts for a £4.3mil liability relating to IR35 after having used the CEST tool. Whats even more worrying is that HMRC state they believe that 1/3 of contractors are taxing themselves inappropriately but we have witnessed clients using the CEST tool and getting 98-99% of roles inside of IR35, clearly showing the risks of using an automated tool with no specialist advice! Find the right solution for your business with our IR35 comparison table.
Education on this subject is paramount and from what we found, 55% of contractors felt their client / recruitment agency were not doing enough to educate and engage their workforce. 76% also felt that businesses had not learnt the lessons from the Public Sector (2017) or the delayed 2020 changes!
Now is the time to prepare, educate your workforce and use the changes as a positive to your attraction and retention strategy!
The cost of 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). You also have penalties in top of that and the administration burden of dealing with contractors challenges, with 53% of our survey likely/very likely to appeal their client decision!
Communication and Transparency is Key
90% of our survey were eager to assist their clients in the IR35 assessment process and in addition 81% said they would accept the determination if they have been involved, again demonstrating the need for education and getting the assessment process correct. More worryingly, 80% stated they had not been spoken to or engaged on the subject of IR35 by their current client!
Getting IR35 right will give you a competitive advantage over your competitors, giving you access to the best talent at the best rates! If your business gets IR35 wrong and loses talent to direct competitors, this is going to be a financial and reputational risk to your business!
Brookson Legal Services is the only SRA regulated law firm that specialises in IR35 and can offer education, guidance and legal consultancy advice to ensure you legitimately maximise the number of contractors outside of IR35. Enabling your business to protect your flexible workforce and give you a competitive advantage! Get in touch to find out how we can help your business prepare.