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Recruiters: Should You Encourage Your Clients to Assess IR35 Status Now?

IR35

From April 2021, end clients who don't class as small private companies will have to assess the IR35 status of any contractors they engage. Some started the process in the run-up to April 2020 and issued status determination statements before the reform was delayed, and some better-informed clients have started assessing now in preparation for April 2021. Given that a client’s assessment has no official status until April, how do they affect you and your contractors, and should you encourage your clients to issue them?

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Where contractors have already been assessed as outside IR35

This is good news for the whole supply chain, as it means business can continue as usual. Having an outside decision at this early stage will give the contractor much-needed clarity and security, and allow the client to focus resources elsewhere.

The contractor is still responsible for their own IR35 status and should continue to follow best practice, including assessment by independent experts, and gathering evidence as a routine part of running their company.

Where contractors have already been assessed as inside

The status determination has no legal weight, because the legislation to which it applies has not yet come into force. However, it represents strong evidence that the contractor is inside IR35 and it could be problematic to continue engagement with their limited company (PSC) as if they were outside.

Technically, the liability lies with the contractor until April, so there is no legal risk to your or your client, but it could have an impact on your reputation, and it’s in everyone’s interests to act compliantly.

Though it may not initially appear so, having an inside IR35 determination now is actually an advantage, because it gives you, the contractor and the client an opportunity to take action. It’s much better to know this now, rather than close to April when options will be limited by the deadline. 

Where IR35 status has not yet been assessed

It’s a good idea to advise your clients to begin assessing their contingent workforce as soon as possible. They will need accurate data about their situation in order to make informed decisions as they prepare for the reform, and the only way to get that information is to assess their contractors.

Orange Genie’s IR35 assessment tool can be used to efficiently and accurately assess the IR35 status of their workforce, reducing the difficulty and cost with a completely virtual, insurance backed solution.  

Once the client has assessed their contingent workforce, they can begin focused preparations. Depending on the situation, this could include changing working practices so more contractors fall outside IR35, or preparing to transition contractors to their preferred PAYE solution.

Changing a contractor’s IR35 status

It may be possible to amend contracts and working practices, so more contractors fall outside IR35. This will keep your contractors happy and it involves no increase in costs for you or your client.

However, changing a contractor’s IR35 status is not a simple task, and it can’t be achieved by just ticking a few boxes. The relationship between the contractor and the client will have to change, from one that resembles employment to a genuine business to business arrangement. This is one reason why it makes sense to assess now, because it’s much harder to do this with a tight deadline.

Where this is possible, it will take specialist expertise to accomplish. The experts at Orange Genie Compliance can help with this process.

Contractors who need a PAYE solution

Ideally, you and your clients will work with your contractors to ensure as many of them as possible fall outside IR35, but this approach is unlikely to work for everyone. Those who can’t be “moved outside” will need a PAYE solution, as this will be better for them than trading through their PSC.

Contractors who move from trading through a PSC to being paid through PAYE will see a decrease in their take home pay. Clients may find that they need to uplift rates in order to retain key skills.

The most common options are, agency PAYE and umbrella company employment. In most cases umbrella is the best option for you and your contractors, as long as the chosen umbrella company is accredited by FCSA.

Contact us for help

Most end clients will require expert help to assess IR35 correctly and take the necessary action. By working with Orange Genie Compliance, you can provide an efficient and reliable assessment tool as well as the expertise and advice they need.

If you have any questions, or if we can help in any way, please call our expert team on 01296 468483 or email info@orangegenie.com

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