Understanding the impact of IR35 on your organisation

Posted — Wednesday 26.11.2020

Tax and payroll can be complicated areas of finance for many organisations, particularly for those that hire contractors and self-employed workers. New tax reforms are coming in for many people who fall into this category of worker, and businesses with contractors at their heart are set to be impacted.

A flexible workforce is a huge benefit to many organisations, enabling them to deliver their services at more competitive prices. But IR35 reforms, the UK’s anti-avoidance tax legislation for contractors, is set to change how businesses manage their contractors moving forward. 

Despite the COVID-19 pandemic, HMRC is still planning to introduce these changes from 6th April 2021. From then, businesses will be responsible for determining the employment status of their contractors, and must inform HMRC about whether individuals can be classified as employees.

Businesses that do have a largely flexible workforce may find that complying with IR35 is going to be a significant challenge as there will be a lot of information that needs to be processed and managed to determine the employee status of each contractor. Having a clear understanding of the changes, how it impacts an organisation and having a clear audit trail for HMRC throughout this process is going to be critical.

Conroe Simplifying a complicated process

A clear audit process will play a key role in helping your business prepare for the IR35 reform, ensuring that you and your finance teams understand the new responsibilities that it brings and how it may affect your workforce structures.

At PCW, we’re offering businesses support and advice to help you navigate IR35 to ensure business continuity and reduce any potential liability that falling foul of the reforms might bring.

We can work with you to conduct a full review of all staff and contractors that currently work within your business to identify which will be impacted by the new rules, and consider contracts that are in place to determine whether you want to maintain a similar relationship with a contractor. If a person is to remain truly self-employed, their contract and responsibilities need to be reviewed to ensure they’re sufficiently distanced from the business.

Many contractors are likely to fall within the scope of IR35, so you need to consider the true cost of IR35 to your business, as well as the additional payroll burden. We can assist you with a review of the costs.

With a few months left to go until the changes come into force, now is the time to undertake this assessment before the rules change, as recognising contractors as employees instead may result in formal redundancy procedures, which would be time consuming and expensive. We can also help you to terminate work contracts in accordance with the current legislation, to avoid litigation in the future.

Importantly, the truly self-employed must be protected and be fairly – and individually – assessed. Evidence suggested that some large employers have taken a blanket approach to include all contractors under the rules to avoid penalties or reputational damage. However, this means that some employees have been unfairly included within the scope of IR35. 

There could be a number of internal consequences to this, including conflict with key members of staff and litigation if a worker feels that their new status means that they are unable to work for the business in the future.

Finally, businesses need to consider their recruitment process for new workers. Future job adverts should make it clear whether a role is for a contracted period by a self-employed individual, or a more permanent internal role as a consultant or contractor. 

Our team can help you establish clear and effective processes to ensure you carry out the necessary steps to avoid any liabilities, while also ensuring that contractors that work with you are fully aware of how changes might impact them.

There’s a lot of work to be done between now and April, so getting ahead and starting early will help the transition become much smoother for your organisation and your workers as the IR35 reforms come into play.

Contact our team today to find out how we can help you through the process and beyond.

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