Eton Bridge Partners were joined in the latest of our lunchtime webinar series, by IR35 specialists, Brookson Legal. This discussion was focused on IR35 and featured a review of the changes, as well as a Q&A around the reforms that are due to come into effect in April 2021. Paul Lloyd, IR35 expert at Brookson Legal and Nick Berman, Partner in our Business Transformation Practice answered key questions from our clients and candidates.
The changes to IR35 were due to come into force from April 2020, but were delayed due to the impact of COVID-19 on the economy. HMRC have indicated that there will not be another delay and they are urging all organisations to prepare in good time to ensure that they are prepared for the changes to processes required.
At Eton Bridge Partners, we have partnered with Brookson Legal to both support us with ensuring that we are well prepared for the changes and importantly, to enable us to support our clients in the most effective manner. Maintaining a flexible workforce has never been so important given the significant change and uncertainty faced by us all, and it is imperative to minimise the impact that these changes will have.
The session covered the key topics of:
- What is IR35?
- What are the key IR35 tests?
- What is changing in April?
- What is reasonable care?
- How to prepare for the April changes?
What is IR35?
In its simplest form it is the intermediary’s legislation introduced in 2000, known as IR35, a piece of anti-tax avoidance legislation to combat what HMRC call ‘disguised employees’. A Disguised employee is a self-employed worker who fills a permanent position in a company but does not pay the corresponding income tax and National Insurance that a permanent worker would.
What are the key IR35 tests?
IR35 is very subjective and the tests below are a guide that should be reviewed by an expert and guidance given on changes that can be made legitimately!
Control – How much control does the end-hirer have over the worker? (How, what, where and when they work/carry out their duties)
Personal Service (substitution) – Is the contractor required to carry out the work themselves? Can they send a replacement?
Mutuality of Obligation – Is there an obligation on the worker to work and an obligation on the other party to pay and to continue to make work available during the time of the contract?
Other factors – These aren’t as important as the key tests but look at whether the contractor is in business in their own right, have financial risk and possibly use or provide their own equipment
What is changing in April 2021?
It will no longer be the contractor’s responsibility or liability to assess their IR35 status. Their client will need to assess the contractor’s IR35 status whilst taking reasonable care in the decision. They must produce a detailed SDS (Status Determination Statement) with reasons why the role is inside or outside of IR35. If the role is inside of IR35 the ‘fee payer’ (usually the agency) will need to arrange for PAYE/NIC to be deducted or utilise an umbrella company.
What is Reasonable Care?
Introduced with the public sector changes in 2017, reasonable care requires hirers to take the necessary steps to correctly audit their self-employed workforce. This is how we expect HMRC to police the legislation, at end client level and with a focus on reasonable care.
Businesses will have to demonstrate that they have taken active steps to prepare for and comply with the new legislation. There are a number of examples below:
- Seeking the advice of a qualified, professional advisor indicates that reasonable care has been taken.
- Inputting inaccurate information into CEST indicates that reasonable care has NOT been taken.
- Subcontracting the SDS process to another party (agency or contractor) and not confirming the accuracy of the conclusion or reasons for it indicates that reasonable care has NOT been taken.
How to prepare for the April changes?
Clients should now be educating key stakeholders and contractors on how they are going to assess their workforce; they should be communicating with the supply chain and then starting a process to complete the assessments or audit their flexible workforce. They need to have robust processes internally or outsource this to a qualified business ensuring they meet reasonable care prior to the 6th April, and then ensure this is part of their ongoing recruitment process they have an ongoing responsibility to assess new roles and to review existing contractors in the future.
With an average of 68% of reviewed roles being deemed outside IR35, it is evident that the legislative changes do not impact as many individuals as a number of organisations initially believed. By utilising an interim workforce in the correct manner, there are only a few reasons why a role MUST sit inside IR35.
The interim market is, on the whole, holding its ground when it comes to moving to fixed term contracts and moving to inside IR35 status. The market will become polarised and it is important that the decisions made are based around value and not purely cost. A flexible workforce will be more important than ever as organisations look to create scalable and sustainable operating models.
There were a number of questions raised throughout the webinar itself and we have published a full list of these and the responses. Please follow this link to read your FAQs and you can watch the full discussion here.
If you would like to discuss your questions around IR35 in more detail, please do not hesitate to get in touch with Paul Lloyd or Nick Berman.
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