How to start preparing for IR35

There are steps businesses can take now to ready themselves for off-payroll rules, says Colin Morley

The gods have finally spoken: despite heaps of opposition and key examples of 2017 public sector introduction failings, pleas for a delayed introduction of the contentious IR35 legislation into the private sector have fallen on deaf ears. April 2020 is the private sector’s deadline.

Here are some key actions to take now to ensure you’re braced for IR35’s impact next year.

Contractor audits

These are an absolute must. Providing a 360 insight into your organisation’s contingent workforce, an  audit will identify who your contractors are, how they are contracted by your business and what entity they are from. They will help you to find out whether they are engaged via a limited or umbrella company, whether the contractor’s bank accounts are based onshore or offshore, or if these companies are VAT registered.

Remember – IR35 isn’t the only challenging legislation for UK companies at the moment. Has your business considered the Managed Services Company (MSC) Act? What about the Criminal Finance Act in relation to how contractors or paid? And let’s not forget the Agency Workers Regulations in all of this. 

It’s all about reading between the lines; many businesses will be unaware of the potential risks they may find themselves under. For example, third-party debt transfer is carried by the MSC Act. What does this mean? If you are unsure of what entities your contractors are engaged with, or whether these are simply a front for a tax avoidance scheme, you will leave your company at tremendous risk of committing a serious corporate criminal offence via the Criminal Finance Act, owing to failure to prevent tax evasion. 

An audit of your contractors will also display the skills they bring to your business. Using this information, you can then identify whether or not you will have to keep or change your contractor relations post-IR35, to ensure you remain competitive and leverage the skills base you need to reach optimum performance.

Do not repeat history’s mistakes

Many companies have taken ‘blanket’ decisions, resulting in contractors being unfairly placed within IR35. In fact, according to our research, when IR35 was introduced to the public sector, 49 per cent of contractors jumped ship for the private sector, leaving the public sector dry of talent. 

Your business can best prepare by taking informed, adaptable decisions that can move with any tides that may be made by changes on HMRC’s part to the legislation. Take the time now to deal with your contractors the right way; determine their IR35 status on a case-by-case basis. The private sector reform states that businesses need to take reasonable care and, by treating your contingent workforce fairly, you will enhance your ability to retain key skills long after IR35’s implementation. 

Learn to adapt, prepare to flex

Two years on from the public sector’s IR35 introduction, it clearly isn’t perfect. The government’s Check Employment Status for Tax tool still faces a constant barrage of criticism, while court case upon court case hits back at HMRC. 

The small business exemption will remain, but then there’s the possibility of a ‘client led’ disagreement process. Change is inevitable, even after IR35 is implemented into the private sector. True, UK companies are in a state of limbo ahead of the November statement, which will hopefully clear up any remains of ambiguity of the private sector’s terms for IR35. But that doesn’t mean your business cannot prepare adequately now.

Learn to adapt your working practices and you’ll be able to mould alongside any changes; having a willingness to change approach if HMRC does change tack or policy will help your company to cope if or when this happens.

Act now

Understanding your contingent supply chain and the risks associated with this is vital ahead of next year; UK businesses should be asking themselves what permanent skills they need, who their outsourced providers will be for extra support, and what skills they can adjust alongside business demand. 

Conduct your audits, review your contingent supply chain and get IR35 ready – act now.

Colin Morley is group professional services director at Harvey Nash