As of April 2020, HMRC’s off-payroll legislation will be moving into the private sector. This means that recruiters will need to determine whether or not their contractors fall inside or outside of the regulations that IR35 brings. Previously, it has been the responsibility of the contractor themselves to define their correct tax status, but that is set to change. From April 2020 the end client will need to determine whether any role, old or new, falls inside or outside of IR35. This means that recruiters will be responsible for helping to determine a contractors IR35 status. If HMRC carry out an enquiry and find that recruitment agencies supplying contractors have incorrectly determined their IR35 status, the agency will be financially liable.
Determining a Contractor’s Correct IR35 Tax Status
In order to prepare for the change, it’s important to know how to determine the correct IR35 tax status of any contractor.
- Consider Who Will Determine IR35 Statuses – It’s helpful to have specific individuals who are responsible for determining the IR35 status of contractors. They must understand the changes and know how to correctly reach a decision. In larger recruitment agencies, this may fall to departments such as HR and Legal.
- Audit Current Payroll Systems – IR35 is likely to bring about big changes to the way that agencies manage payroll and therefore it’s important to audit the current way of doing things. If the payroll system is not capable of managing the additional demand of IR35, a new system may need to be put in place.
- Know Which Current Contractors Will Be Affected – It’s not just new contractors that will be affected by IR35, but existing ones also. It’s important for recruiters to assess their current workforce and determine if any contractors are working with an incorrect tax status. Those currently working through a limited company are likely to be affected.
- Avoid Schemes or Solutions – In the lead up to the IR35 changes, many recruitment agencies will be approached by companies offering schemes or solutions to help. It’s important to remember that not all of them are approved by HMRC. Not following IR35 correctly could result in hefty penalties, which means that compliance is key.
At Rubicon Pay we are experts in IR35 and can help your recruitment business prepare for the changes IR35 will bring. For more information about IR35 and how Rubicon Pay can help click here.