IR35 was introduced to ensure that individuals operating via a personal service company (PSC) were paying the correct levels of income tax and national insurance contributions, relative to their employment status.
The basis of the legislation is to assess the nature of the direct relationship between the end client and worker (removing any intermediaries) and identify disguised employees operating through their own PSC.
Our team of experts, who bring a combined 40 years’ experience, have supported private and public sector organisations to comply with IR35 legislation since it was introduced in 2000.
This experience proves invaluable to our clients and their operations.
From April 6th 2021, determining the correct IR35 status will switch from the individual to you, the end client.
Inside or outside?
Where an assignment is deemed ‘inside’ IR35, relevant tax deductions must be made from the contractor’s pay.
Any assignment ‘outside’ IR35 is classed as a genuine contractor and is not subject to the same taxation as employees.
End clients could be left open to financial risk if their contractors are found to be incorrectly determined.
As you, the end client, will be responsible for making these determinations – whether a contractor is ‘inside’ or ‘outside’ scope – you must ensure that your business is delivering correct assessments.
To find out more about how the Morson Group can help with the assessment process, contact IR35@morson.com
Need IR35 support?
With 50 years of recruitment experience, we are the right choice for IR35 compliance.
WHAT IS IR35?
Need help navigating IR35?
As experts in the talent landscape, we bring considerable experience of IR35, having supported numerous clients during the reforms to the public sector in 2017, as well as other legislative changes.
Download our guide to find out how to navigate IR35 changes; the risks, how to ensure compliance and solutions to help take the IR35 headache away.
CLIENT GUIDE | HOW TO NAVIGATE IR35
Legal, operational and reputational
If HMRC finds contractors to have incorrect determinations, then the end client will face potential tax and NICs losses.
For example, a contractor earning £100,000, would face a tax and NICs bill of c.£20,000. Should this same contractor be found to have an incorrect IR35 determination, the end client – your business – could face a bill of £80,000 plus interest, penalties and fines, with HMRC able to extend an enquiry back as far as four years.
Potential end client bill per contractor = (20% of total salary + interest + fines) x4
Adopting a blanket approach, whereby you deem all contract workers as inside IR35, including those who may be genuine limited company contractors, could result in a loss of talent.
Delay to projects due to loss of resource, litigation with HMRC and a restriction to the flow of contract talent are all risks that may arise if you do not prepare early or well enough.
As the responsibility for defining IR35 status switches from the individual contractor to you, the end client, businesses face significant financial penalties should the incorrect steps be implemented. To ensure your business is prepared and to help you mitigate risk, our countdown calendar below defines our recommended timeline of what to action and when.
The risks of not preparing effectively
RISK AND HOW TO PREPARE
Organisations must, therefore, undertake a full review and correctly define the IR35 status of their entire contractor population or create robust statements of work to mitigate risk. Defining the IR35 status of your contingent workforce requires a full review and effective individual assessments of each role to prevent being in breach of deploying ‘reasonable care’ when making such decisions.
Our countdown calendar below defines the various stages when preparing for the upcoming changes to IR35 legislation reform, including our recommended timeline of what to action and when. Too many businesses will leave their preparations too late, which only increases the risk to their operations and is why we’re urging you to act now.
What should I do when?
Review your contractor population
Issue individual assessments to contractors
Review individual assessments and make determinations
Issue Status Determination Summary documents to contractors / agencies – be mindful of appeals!
Issue new contract terms based on status determination
RISK AND HOW TO PREPARE
Review and amend all relevant contractual terms used throughout the supply chain
IR35 goes live in the private sector
Inform contractors of assessment process intended
Appoint a project lead and/or a steering group as having such person(s) will help the programme of tasks progress swiftly. Whether you have a project lead or steering group will depend on the size and complexity of your organisation, as well as your volume of contractor use.
How can Morson help?
Our in-house experts can provide advice on the best team for you, based on your expertise and resource available. We have also developed a handy IR35 process checklist which will help you design a project and risk mitigation plan, either independently or with the expert support of our compliance team. Contact IR35@morson.com to obtain a copy of the IR35 process checklist.
Your first step will be to conduct an internal review of your contractor population. This will require you to obtain data and insights regarding your contractor population either from your payroll and HR teams, your supply chain and/or your recruitment managed service partner. Once collated, you will understand the potential number of affected contractors.
If you have a complex supply chain and/or a large number of contractors that you directly payroll, then this is an excellent opportunity to explore how partnering with a managed service provider, such as the Morson Group, could help to mitigate your risk.
How can Morson help?
We can consolidate your contractor worker engagement process – simplifying and controlling the supply chain spend and compliance adherence, whilst removing the ﬁnancial and legislative burden associated with directly payrolling contractors. This will give full visibility of contractor use and through accurate data, speed up the IR35 assessment process.
Having originally prepared for an April 2020 deadline, many organisations have seen first-hand the potential pitfalls of failing to prepare and most will be required to start such preparations again from scratch – many, now with stretched resources as a result of the ongoing pandemic. Yet with careful planning and the support from an expert partner like the Morson Group, organisations can continue to compliantly engage contractors and maintain a competitive advantage.
Steps to compliance
RISK AND HOW TO PREPARE
After I’ve submitted my sample ESIs to Morson, what happens?
Once the assessments have been submitted, our IR35 experts will provide status reports that will identify whether the roles/disciplines fall inside or outside of scope. The responsibility then sits with you, as the end client, to review this information and determine which contractors are required to complete the full IR35 assessment.
How to demonstrate ‘reasonable care’
Whilst HMRC has suggested that role-based assessments are legitimate, it will be difficult for you as the end client to ascertain any contractor specific factors, which may be considered at an ofﬁcial enquiry and potentially taken into account when confirming overall status. Therefore, to demonstrate ‘reasonable care’, we recommend that all contractors are provided with the opportunity to take an individual assessment. However, as this process illustrates, this decision is for you, as the end client, to make.
Now I understand my contractor population, what’s next?
Using your contractor information and, our sample IR35 considerations list, conduct an initial review of each contractor – something which we at Morson can support with to ensure accuracy. From this, you’ll have a draft ‘traffic light’ system of contractor statuses.
How do I develop my initial assessment?
In our experience, the best way to develop the initial assessment is to complete a sample of mock employment status indicator (ESI) forms. To maximise the validity of this sample, we recommend speaking to your colleagues who utilise contractors to fully understand the roles/disciplines.
Take the burden of IR35 away
To support you in the lead up to (and following) the April 2021 off-payroll changes, our experts are on hand to help businesses navigate the reforms.
From full reviews of your contractual workforce to practical and commercial IR35 solutions including a fixed price
statement of work, we provide a suite of robust solutions tailored to your organisation to help shape an effective IR35 strategy to remove the burden of IR35, minimise risks and costs.