What Recruiters Need to Know About IR35 Reform

IR35 Reform

In his budget speech on 29th October, Chancellor Philip Hammond put an end to months of speculation on private-sector IR35 reform by confirming it would go ahead in April 2020. But what does this mean for you as a recruiter?

How to Help Your Clients Prepare for IR35 Reform: A Recruiter's Guide. Click here to download>>

What will change when IR35 reform comes in?

There are still some fine details that haven’t been finalised, but the main consequence will be that those hiring contractors (usually your end clients) will be responsible for assessing IR35 status, rather than the contractors themselves. Where contractors are found to be inside IR35, the fee payer (usually you) will have to deduct PAYE tax and national insurance from any fees paid to the contractor, and also pay employers national insurance to HMRC.

What effect will this have on your clients?

The reform gives your client responsibility for carrying out IR35 assessments, which creates additional work and exposes them to additional risks. Assessing IR35 status is complex and will require specialist expertise and extra work, and it carries additional compliance risks and liabilities. However, the risks of making blanket “inside” decisions or refusing to work with PSCs are arguably higher in terms of the quality and cost of the contractors they can hire. Your clients are likely to look to you, as trusted recruitment experts, to help and guide them as they prepare for April 2020.

What are your responsibilities as the “fee payer”?  

As it’s usually the recruiter who pays the contractor’s fee to their limited company, where contractors are assessed as being inside IR35 it will be you who has to complete the “deemed employment” calculation and make deductions for PAYE tax and NICs. This may require adjustments to your invoicing and payroll systems. You’ll also have to pay employers NI on payments made to the contractor. This obviously represents an additional cost to you, and we should be clear that employers NI can’t be deducted from the contractor’s rate.

What effect will it have on your contractors?

For those assessed as outside IR35, the reform will change very little, other than having to co-operate with the end client’s new processes as they assess IR35. The way they’re paid and the way they account for their income will remain the same.

However, those assessed as inside IR35, particularly those who were previously working outside, will experience a significant drop in their take home pay due to deductions for PAYE tax and NICs. Those with in-demand skills are likely to expect higher rates to offset this decrease, and some may simply refuse contracts that bring them inside IR35. 

It’s not all doom and gloom

If you’re feeling down about all this, we understand, but it’s not all bad news. By advising your clients well, and encouraging them to act early, you can further strengthen your position as their trusted advisor. The only viable way forward for most end clients will be to assess IR35 correctly, and that’s where we can help.

By involving compliance experts like Orange Genie Compliance, you can easily source the expertise both you and your clients need. We can help you assess your risks and set up robust processes to mitigate them without disrupting your supply chain, and we can work with you to help your clients do the same.

If you have questions about IR35 reform, or if we can help in any way, please contact our expert team on 01296 468483 or email info@orangegenie.com.

 

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