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IR35 Reform: Why Recruiters and Clients Should Use the Delay Wisely

IR35

As you’re probably aware, the private-sector reform of IR35 is due to take place in April 2021, and MPs recently ruled out any further delay. This comes as a disappointment to many, who had hoped for a change of heart following the Lords’ damning assessment of the reform, and of IR35 in general.

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The reform was expected to go ahead in April 2020, and was delayed at the last minute due to the coronavirus crisis. Following the passing of the Finance Bill 2019-21 through the report stage unchanged, there is now no realistic chance of further delay.

Your clients are likely to look to you as a trusted recruitment expert for advice on the way forward. The industry’s best advice is that end clients should use the remaining time to their best advantage and press on with their preparations. 

What preparations do end clients need to make?

Any business which does not class as a small private company will be affected by the reform, and will be responsible for determining the IR35 status of any contractors they engage. This is a complex and difficult undertaking, and the consequences for getting it wrong are potentially dire. Your end clients’ preparations will vary depending on their business and the makeup of their contingent workforce, but in general terms they will need to:

  • Assess the size and makeup of their contingent workforce
  • Establish the risks and formulate a strategy to mitigate them
  • Communicate policy and process to contractors
  • Implement new systems and processes to correctly assess IR35

Most clients will need help from an IR35 expert to plan and execute these requirements. It’s also important to note that IR35 status is not necessarily a static thing – even if most contractors are currently working inside IR35, it may be possible to change this if the client is willing to take expert advice and make changes to their contracts and working practices. The sooner your client engages an IR35 expert, the better their chances of achieving this.

Why it’s better to engage contractors outside IR35 if possible

It’s important to understand that, as long as appropriate care is taken to ensure contracts and working practices all line up, it’s possible and preferable to engage contractors outside IR35.

In the difficult times to come, flexible access to skilled workers will be more important than ever. Contractors who work inside IR35 cost more and take home less money, so clients who are willing engage outside can attract the best talent while controlling the cost. 

Some end clients may be reluctant to do this because of concerns about the cost and risk, but those who do will have a significant advantage.

How your clients can safely engage contractors outside IR35

IR35 status is not necessarily a fixed thing – it depends on the contracts and working practices the client uses in their engagement of contractors, and these can be changed.

Your client would need to assess their current position and adapt the way they engage contractors so they’re more likely to be outside IR35. This will take time, and reform is coming in just a few months, so it’s important to act now.

The best first step is to engage an IR35 compliance expert like Orange Genie Compliance, who can  assess your clients’ current position, including the size and make-up of their contingent workforce, the contractual arrangements in the supply chain and the working practices in place. They will then make bespoke recommendations based on their findings, and help your client implement the necessary processes to minimise risk and cost while ensuring continued supply.

Blanket IR35 assessments

One issue we saw in 2017 when similar reform was enacted in the Public Sector, was the widespread use of “blanket assessments”, where a client attributed the same IR35 status to all their contractors without conducting an individual assessments. This is a terrible idea, as without individual assessment it’s impossible to be sure contractors are working under the correct status. Incorrect “outside” decisions will leave the client, and in fact the whole supply chain, at risk while incorrect “inside” decisions unnecessarily increase costs and make it difficult to source key skills.

Are blanket assessments compliant?

In addition to being inadvisable from a strategic point of view, blanket assessments will usually not be compliant, as they fail to satisfy the requirement that the client exercise “reasonable care” in assessing IR35 status. As treasury minister Jesse Norman recently confirmed, “determinations must be based on individuals’ contractual terms and actual working arrangements.”

HMRC have confused the issue by stating that blanket decision might be acceptable where the role, terms and conditions and working practices are identical. In practice, in the unlikely event that a group of contractors all work under the same circumstances, it’s impossible to know this without assessing those circumstances, so a blanket assessment would still not be safe.

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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