.png)
How will IR35 affect employers and business leaders?
.png)
Originally planned for 2020, changes to IR35 regulations are due to come in to effect in April 2021 which will affect the way employers engage contractors. With the responsibility to adherence shifting from contractor to (medium to large-sized) businesses some employers may feel reticent about engaging with such workers, especially if there is uncertainty with regards to how IR35 actually works and resultant lack of confidence as to how to comply.
Interim executives remain an important resource and their project, change and results-driven experience may be a key factor in steering a business through to success and profitability.
SEA Global’s guide to IR35 2021:
What is IR35?
IR35 refers to tax legislation introduced in 2000. It was designed to ensure contractors and interims working for organisations paid the right tax – if they were working for an employer in the same way a permanent employee was their tax status should be the same i.e., paying income tax and NI. Many contractors, despite working in the same way as an employee, worked via an intermediary business (e.g., their own limited company – what’s termed Personal Services Company) to make tax savings. IR35 therefore sought to clamp down on this, so only contractors genuinely operating as a separate business offering a service could operate in that way.
Since its inception the onus has been on the contractor to ensure compliance, however, this proposed change will mean private sector businesses of a medium to large size will now have ultimate responsibility to comply (public sector organisations already do).
How to determine if a contractor is working within IR35:
Essentially it comes down to – is the contractor working for me in the same way as a permanent employee, or are they offering a service through a legitimate business? If effectively working as an employee they are working within IR35, the latter is considered working outside IR35.
HMRC has developed its own checklist to determine whether a contractor sits within or outside IR35 – Check Employment Status for Tax (CEST), which can be a useful tool for employers as well as contractors. Some find It lacking in areas so while a good place to start it’s worth undertaking your own checks too.
It will be helpful to consider:
-
Mutuality of obligation
Are you obliged to offer the contractor work and are they obliged to undertake it? If so, it’s likely to be considered employment status.
-
Supervision, direction and control
Is the contractor or interim actively managed by someone within your organisation or are they able to work autonomously? If the former applies it is likely this will be considered as employment status. Managed by the business includes directing and supervising the way they work, for example setting their daily hours.
-
Substitution
A contractor should be able to reassign the work to someone else if working outside IR35. The contract relates to the type of work that needs to be done, rather than who is doing it.
How to avoid IR35
Avoiding IR35 simply means adhering to the regulations – by ensuring your contractors are correctly determined as working within or outside IR35 will mean you remain compliant and avoid incurring HMRC fines.
Why are business leaders using Procurement and Supply Chain contractors for 2021?
Contractors and interims remain an attractive prospect at this time – uncertainties over economic events and the need for specialist skill sets means they are the solution in a number of ways:
-
Cost-effective means of supporting business
Rather than investing heavily in the recruitment, onboarding and ongoing costs of a permanent employee, a contractor can be immediately deployed and with far less financial outlay.
-
Diversifying available skills
Contractors are often used for specific projects and/or specific skills, utilising a number of contractors within the business means accruing a wide variety of skills without increasing permanent headcount.
-
Provide support for a backlog of deadlines
Contractors and interims are a great resource for finite work including backlog and projects, providing additional manpower that won’t be needed on a long-term or indefinite basis.
At SEA Global we can help you shape an effective and inclusive recruitment strategy to support your remote employees. Through our database and deep networks we are able to source high-calibre temporary, interim or permanent candidates from diverse backgrounds to suit the specific needs of your business and create an inclusive workplace.