Back in 2016, the government introduced IR35 into the public sector. IR35 details a number of off-payroll working rules and means that the obligation to determine the tax status of a worker now falls to the hirer or fee payer.
Previously, it was the workers themselves that were responsible for determining their tax status. IR35 was put in place as a way of ensuring that individuals working as employees were paying the right amount of employment taxes. As of April 2020, HMRC will be extending IR35 out into the private sector. This means that end clients as well as recruitment agencies in the private sector will now be responsible for determining a contractors IR35 status.
The Impact of IR35 for Recruitment Agencies
IR35 will mean that recruitment agencies will need to be on the ball when it comes to the tax status of their contractors, as they will be responsible. A recruitment agency must determine the appropriate tax status of each individual, otherwise they could be faced with a tax bill for anyone categorised incorrectly.
With the right steps and processes in place, recruitment agencies will be able to comply with this new IR35 legislation and avoid incorrect assessments. Under IR35, it is most important for recruitment agencies to establish whether a worker is employed or self-employed in the eyes of HMRC. Contractors who do not meet the requirements HMRC have for being self employed will come under IR35 and could be faced with increased tax, as well as National Insurance liability.
In order to ensure everything works smoothly and in line with IR35, recruitment agencies should consider having a workplace audit carried out.
This will establish the working practices of each individual contractor and will highlight which will be affected by IR35. If any contractor currently has the incorrect tax status, steps will need to be taken to correct this.
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.