On 6 April new tax legislation will come into effect that is set to have a huge impact on contractors working in the private sector, which aims to raise more taxes from so-called ‘disguised employment’.
The new off-payroll legislation means private sector companies will be responsible for determining a contractor's employment status for tax purposes, or IR35 status, and then taxing the contractor’s rate as employment income if applicable. If a genuinely self-employed contractor is incorrectly deemed inside IR35, it could result in a significant tax hit for the business.
With around 60,000 businesses due to be affected and some 500,000 contractors running their own limited companies who will need assessing, this is a mammoth task. And with just a few months to go before rollout happens, clarity is needed – and fast. This is where automation comes into play.
Human beings have been automating processes as early as the industrial revolution, creating machines to take care of manual, monotonous tasks to make processes more efficient. And, in today’s digital world, automation is more prevalent than ever as diaries have been replaced by phones, maps by sat nav and photo albums by cloud storage.
Employment status, and how it is determined, has come under the microscope following the emergence of the gig economy in recent times and it is set to come under more scrutiny in the coming months as the new IR35 tax rules take effect.
As employment status law is incredibly complex, legal experts rely heavily on the hundreds of past cases and tribunal rulings when examining status. Rarely is a worker’s situation cut and dried, which makes employment status evaluation a potentially onerous and time-consuming task. But with automation, a huge amount of data captured accurately from all stakeholders in the supply chain can accurately determine the status of each worker and precisely indicate where they sit on the self-employment and employment divide. It means that one clear advantage of adopting an automated system will mean major efficiency gains.
One could estimate that it might take one legal expert roughly a year to conduct 1,000 reviews. Automated software can conduct an evaluation instantly and can cater for thousands of users in a single day. It can save countless hours, enabling legal experts to filter out cases that don’t require further attention and freeing them up to focus their expertise on higher-value work.
Conducting a detailed analysis of a worker’s employment status in such a short space of time means high volumes of assessments can be completed every month, as well as generating large samples of data drawn from a number of evaluations that a human expert would take years to accrue. It also means that automation can help to identify patterns and trends, compare benchmarks and highlight outliers. This information can prove vital to inform and guide any decision making.
But employment status law is just one example of how automation can be used to augment human expertise, while introducing efficiencies, improving quality and reducing admin loads to gather insights. As automation continues to improve and make inroads into other areas of employment law, it is surely only a matter of time before it is recognised as an invaluable and indispensable tool in a legal toolbox.
Dave Chaplin is CEO of IR35 Shield and author of IR35 & Off-Payroll Explained