The government introduced IR35 in 2000. The now re-named off-payroll working rules, were introduced into the public sector in 2017. This meant that the obligation to determine the tax status of the worker moved from the worker to the hire and fee payer. The intention behind this was to ensure that individuals working like employees are paying the same employment taxes as employees, regardless of the structure they work through. As of April 2020, HM Revenue and Customers will be extending the off-payroll working rules to the private sector meaning medium to large-sized businesses in the private sector will also be required re-evaluate and assess their flexible workforce.
What does this mean for agencies?
Recruitment agencies will need to be vigilant and take reasonable care when attempting to determine the tax status of the worker. It is vital that the agency determines the appropriate tax status in order to reduce the risk of incurring a tax bill for any contractors incorrectly assessed. By taking reasonable care and executing the on-boarding processes correctly, agencies will demonstrate their commitment to legislation compliance and reduce the risk of an incorrect assessment.
Ultimately, the most important point to establish is whether the worker is classed as ‘employed’ or ‘self-employed’ under HMRC’s criteria. Therefore, contractors who do not meet HMRC’s definitions of ‘self-employment’ will be caught by IR35 and will result in an increased tax and N.I liability.
What can we do now?
In order to ensure everything is in line and up to date with HMRC’s legislation, it would be advisable to undertake a workplace audit to establish each individual contractor’s working practices. This will determine how many of your contractors are exposed to IR35 and highlights necessary steps you might need to take to further determine their tax status.
It is important for recruitment agencies to minimise concerns regarding the extension of IR35 to the private sector and can do this by referring contractors to HMRC’s Check Employment Status for Tax (CEST) tool and by providing extra legislative information and resources to de-mystify any fears.