Answering Google’s Most Searched Terms for IR35 – 2020
With the planned private sector IR35 implementation delayed by 12 months, Matt Fryer and Paul Lloyd have another opportunity to a look at some of the of the most frequently searched terms for IR35, sharing their thoughts on what each of these mean for End Hirers, Recruiters and Contractors in preparation for IR35 April 2021.
hello welcome to our question and answer session on Google’s most searched terms for IR35, you may recall we did a similar session last year, obviously we’ve had a 12 month delay in the rollout of the changes so it’ll be interesting to see what questions google is being asked now compared to last time round.
My name’s Matt Fryer I’m group compliance director at Brookson group and I also head up our Legal Services Practice, we’ve we spent the last 12/18 months working with lots of end hirers, agencies and contractors right trying to get the implementation of these changes right and I think the questions that are being asked of google will help us all to get our heads around what the changes are and what we need to do.
I’m happy to be joined on this session by Paul Lloyd. Hello everyone, I’m Paul Lloyd I’m the group sales director for Brookson, lots of experience in talking about IR35 and helping agencies and clients through the changes in the public sector and prior to the delay to April 2020 was giving lots of advice to clients on IR35 then as well. Great thanks Paul. So, we’ve got a list of 10 or 12 questions here, we haven’t seen them yet, so we’ll see how we get on.
So, the first section we’re going to look at is questions beginning “what” relating to IR35 and Paul’s going to see the question in a second and read it out and I’ll have a go at answering them.
What impact has COVID has on IR35?
Good question so I guess we look at the delay to the role out to IR35 April 2021 and the reason government gave for that is because businesses are obviously going to struggle over the next 12 months to implement a big business change against the backdrop of the COVID pandemic so that’s a big impact, one of the key reasons why everyone’s given an extra 12 months is to get ready It will be interesting to see the impact COVID has on the economy feels like there’s a recession coming and the ability for businesses to flex their workforce during that period be important as well so we might see a growing use in off-payroll workers so growing stress in businesses around managing this this new risk from April 2021.
What happens after IR35 April 2021
So the main change is the responsibility shift, so responsibility for determining status moves from the personal service company from the contractor directly to the end client who benefits from that contractor’s service, so that’s the big change, end hirers have got to make an IR35 decision, we also see tax risks moving as well currently it sits with a contractor but that’s going to sit in two places, one with the end client if they don’t take reasonable care in coming to that status determination they potentially got tax risk and also the fee payer typically the recruitment agency that’s paying the contractor they’ve got some tax risk involved here as well so it’s really important that end hirers and recruitment agencies start to get the head around this change and thinking through what their process is going to be in the run-up to IR35 April 2021 and not forgetting that this is a continuing risk to manage after that date as well.
What IR35 Tools are available
Okay yeah, it’s an interesting question, lots of tools in the market now and by tool I’m referring to an algorithm-based online tool that gives an automated IR35 status decision, there is one out there it’s free to use it’s available on the government’s website called CEST (Check Employment Status for Tax), lots of concern around the accuracy of that and the way the computer algorithm can give an IR35 decision and there are other private sector developed tools out there obviously you’ve got to pay for those still concerns around that mechanistic approach.
The courts have said that that’s not the way you assess status, you need to look at all the factors sit back and come to a decision so lots of tools out there some better than others, I’m not convinced that any of them give you that non-mechanistic approach to status decision making that the courts require so I guess there’s a there’s a word of warning attached to those think carefully before using them
Okay so in this section I’m going to be grilling Paul on “will” IR35 based questions.
Will IR35 be delayed again?
That’s a good question and something I get asked quite regularly. I think it’s highly unlikely is probably the most obvious answer, HMRC we’re keen to introduce this in April 2020 and there is extremely large tax savings budgeted and the delay due to COVID really has meant that the 12 months soft land that was originally spoken about now means that it’s still coming in as a hard landed in IR35 April 2021. So, I think any businesses that think that this is going to be delayed again are going to have a shock come next year and need to start preparing earlier rather than later.
Will companies blanket ban IR35?
More than likely yeah I suppose is the answer, we definitely saw that in the public sector changes in 2017, we saw it in the run-up to the changes before they got delayed for April 2020 and I suppose the companies may look to do that because it’s easier for them but what the obvious point is they’re going to find it extremely difficult to attract talent and it’s not taking reasonable care in terms of making sure they’ve done a correct assessment in terms of IR35.
I think what we found on the run up to April 2020 was that it resulted in a lot of disgruntled contractors, a lot of them asking for rate increases and a lot of them challenging the process as well so I think hirers taking that approach could find it more problematic.
Will IR35 stop limited companies?
No not at all no IR35 isn’t changing, it’s just that the liability and the responsibility shifting so there is no change to the way that IR35 is assessed it it’s based on 20 years of case law and completing the correct tests I think what will happen is it will probably change the way the contractors work and engage. I think at the moment they’ve got a choice where if they’re outside of IR35 they can work through the limited company if they’re inside they need to work through a PAYE solution like umbrella and I think that it will change the way that they engage those types of models because they’re likely to have roles that fall inside and outside of IR35 within a 12-month period.
Ourselves we’ve launched a new product called Flex and that actually lets people move between those two products and allows them the flexibility to be able to switch between umbrella and limited company while still pulling the tax returns together at year end as well.
Okay so for the next set of questions we’re looking at questions that start with “how”.
How do I complete an IR35 audit?
Okay so an IR35 audit is essentially trying to establish whether a particular contract is one of an employment relationship or not but to do that there’s two things you need to be looking at really:
One is what’s written in the contract and typically there might be two contracts to look at contract between end client and agency and contract between agency and PSC (Personal Service Company), so you need to look through those and look around the employment status tests. Second thing is just to make sure that those contracts are actually being performed in practice in line with the contract, we need to look at the working practices and that’s looking around how you engage and treat contractors in your organisation.
One of the big changes as a result of the IR35 April 2021 is shifting liabilities, this is now an end hire a lead audit, so it needs to be the end hirer that’s looking at the way that they treat and manage workers rather than the previous approach which was a contractor doing that you should come to the same output but it’s the end higher risk now and all the information’s in in the possession of the end hirer and so that’s one of the big switches we’re going to see as well.
How long does an IR35 Audit Take?
Okay so yeah so as I’ve described before you need to be getting into the ins and outs of the working practices, you need to be reviewing contracts and to review one individual contract it could take half an hour could take an hour to review the working practices again would be half an hour could be an hour so relatively quickly.
To do the actual audit I think to get the best outcome you really need to think about who’s undertaking that audit what knowledge do they have the access to information in the business but also how can they apply the case law that relates to IR35 so it shouldn’t take long to actually do an audit but it’s getting all the ducks in a row and getting the right professional advisors and the right internal knowledge lined up and that’s where the time and investment needs to be taken now, just to make sure you’ve got it all teed up correctly and then you should be able to whizz through those audits pretty quickly.
How to stop IR35?
I’m unsurprised that that’s a high search term in google, I don’t think we’re going to stop the legislation changes maybe the question is how do you stop IR35 impacting so how do you prevent an inside IR35 status?
For me that’s around the engagement being not one of employment and so that needs collaboration really between everyone in the supply chain, just to think through what am I buying here, if I’m buying time and materials and I want to control that individual and I want to specifically make that individual not allow anyone else to cover the project and then you’re starting to look towards IR35 applying.
If this is a statement of work fully outsourced service with appropriate risk and financial penalties and you’ve got a bit of flexibility around who you’re going to use and you’re not willing to control them too much particularly in what the contractor is doing and how they’re doing it then you’re starting to move towards an outside IR35.
There’s no silver bullet to this I’m afraid it is about understanding and applying those employment status test to each contract.
Okay the final section going to ask Paul some questions around “Is” IR35.
Is IR35 Good or Bad?
That’s a really unusual question I suppose it depends on what lens you’re looking through I think the legislation when it was originally brought in back in 2000 was brought in for the for the right reasons it was to stop non-compliance and to identify where people weren’t paying the correct amount of tax, I think the question around whether it’s good or bad probably means around the changes that are coming in and again it’s probably not a bad thing in terms of it being the client’s responsibility to make the assessment, they have no vested interest in terms of how that contractor should get paid, the contractors that are making their own assessment, clearly they have financial gains out of answering the questions in a certain way to be outside of IR35 so I suppose that the least biased person in that supply chain is the client and so putting the responsibility with them is probably a good thing overall.
The difficulty is that we’ve seen over the last three years now that these changes aren’t implemented properly, and clients take or don’t take the right advice and don’t go and get external specialists to look at this for them and sometimes take a blanket approach which isn’t good. I suppose it whether it’s good or bad again probably depends on what lens you’re looking through and I think it’s a good thing as long as people do it in the right way and take reasonable care in their assessments.
Is IR35 the end of contracting
No definitely not and something that a lot of people ask or talk about or write things on, I think. This is definitely not the end of contracting and there’s been lots of different iterations of different legislation over the past 30/40 years that have affected the flexible workforce as a whole I think and over that time people have said this will be the end of contracting and it certainly isn’t, flexible working is one of the fastest growth areas in the uk industry, the uk massively relies on flexible workers and I definitely don’t think this is the end of contracting and similar to the question earlier I suppose will the stop limited companies no it won’t, the ones that are genuinely outside of IR35 will be able to continue working that way.
Matt mentioned in a previous question that the way that IR35 April 2021 is assessed hasn’t changed it’s just the person responsible so I think people working collaboratively and working with the supply chain and taking reasonable care in their assessment then this shouldn’t have any impact in terms of future contracts opportunities.
Is IR35 liability changing?
Yes it is and I think you’ve mentioned this on a previous question as well Matt in terms of what’s changing. The liability at the moment currently sits with the director of the limited company it’s their responsibility and liability if they get the assessment wrong that’s going to change from the implementation date from April 2021 once the legislation comes in the liability will sit with the fee payer so that the legislation uses that terminology and does clarify that in terms of the entity in the supply chain that’s closest to the PSC (Personal Service Company) so the person paying them normally is the recruitment agency, that’s why we’ve spent so long advising recruitment agencies on the risk of IR35 and making sure they get that right and similar to what you said again Matt, make sure the whole supply chain is working together and can make sure that they reduce that risk and mitigate that that possible liability.
Okay some interesting questions thrown out there by google hopefully our responses may make sense and help if you’ve got any further questions or want to touch base with anyone in the Brookson team feel free to contact us thanks for watching.