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IR35 Reform: How Your Clients Can Avoid Losing Contractors

IR35

IR35 reform is due to hit the Private Sector in April 2021 and many commentators expect it to have a dramatic and negative effect on the contracting industry. If experience of similar changes in the Public Sector mean anything, end clients will also experience some negative consequences, as contractors vote with their feet and projects begin to fail. In this article, we’ll look at how your clients can avoid these negative effects.

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The expected cause of the negative consequences

As HMRC are fond of pointing out, IR35 itself is not changing. The only thing that’s changing is that the end client will be responsible determining IR35 status rather than the contractor, so where contractors are genuinely outside IR35 now, they should still be outside after the reform. So why is the contracting industry so worried?

The main issue is that in order to determine IR35 status, the end client will have to spend money and allocate resources. In the run up to the expected deadline in April 2020, many end clients decided against this, and instead made blanket decisions to force all contractors inside IR35, or made internal policy decisions to stop working with PSCs.

This meant that many contractors who were genuinely outside IR35 were forced to use a PAYE solution, which left them paying more tax than they needed to.

Why is this bad for your clients?

On the surface, this might seem like the ideal solution for the client as it allows them to avoid the additional work, risk and cost associated with assessing IR35 status. However, as we saw when similar reforms hit the Public Sector, this approach does have some consequences for the client as well.

Contractors cost more

Where contractors are working inside IR35, employers National Insurance is due on payments made to them. This means contractors cost more if they’re inside IR35. Insisting that all contractors work as if they’re inside means unnecessarily increasing costs.

The best contractors will go elsewhere

Contractors working inside IR35 take home less money unless the pay rate is uplifted to compensate. Many contractors also prefer working through their PSC for a number of other reasons. Clients who fail to assess IR35 correctly, or refuse to work with PSCs, can expect those contractors who have a choice to go elsewhere. It’s obviously a bad idea to limit your recruitment to people who have no other choice.

What can your clients do about it?

The best advice to your clients is to assess IR35 correctly, and adapt their internal policies and working practices to make it more likely that contractors will fall outside IR35. This will make them more attractive to contractors, many of whom will be actively seeking contracts that allow them to work outside IR35.

Assessing IR35 status correctly

This means assessing each contractor’s IR35 status individually, taking into account their specific circumstances and working practices as well as the contract.

Adapting working practices

Where contractors do fall inside IR35, it’s often at least partly due to the way the client works. By assessing their working practices through the lens of IR35 compliance, clients can adjust their internal policies and practices to make it easier for contractors to fall outside IR35.

Most client will need help with this

Most clients will need specialist help to assess IR35 correctly. The best course is to involve IR35 compliance experts like Orange Genie Compliance, who can:

  • Assess their particular situation, including the size and make up of their contingent workforce, the contractual arrangements in the supply chain and the working practices in place.
  • Make bespoke recommendations based on their findings.
  • Help the client to implement the necessary processes to minimise risk and cost, while ensuring continued supply.

If you have any questions or if we can help in any way, please call our expert team on 01296 468 483 or email info@orangegenie.com

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