There’s a big recruitment elephant in the room. IR35, the revised rules for ‘off-payroll working’, goes live from 6 April and it’s going to mean big changes for contractors. In this post, we explore how it’s still not too late to take action.

The impact of IR35 will vary from organisation to organisation, but if you use interim resource in the form of limited company contractors then you might be affected. In some organisations which rely heavily on contractors, the changes could affect 60% of the workforce.

What is IR35?

It’s the change in ‘off-payroll working’ rules designed to combat ‘disguised employment’. That is, contractors who would be classed as employees (and therefore pay more tax) but for the fact that they operate under a limited company, umbrella company or other intermediary. Whilst off-payroll rules already exist, the big change is that responsibility for compliance now rests with the employer, not the contractor. The new rules come into force on 6 April 2021.

What happens if you get it wrong?

HMRC has promised to waive penalties for one year (except in cases of deliberate non-compliance). Thereafter, employers who wrongly declare a contractor as outside the scope of IR35 when they should be within it will, at best, face repaying tax with interest. At worst, they could face significant penalties.

What’s the problem?

We have been looking at recent research by IR35 Shield which has found that:

• 52% of in-work contractors are yet to be assessed for IR35. And we know from our experience that the 52% includes many contractors who don’t even know of the issue yet.

• 65% of contractors will avoid working ‘inside IR35’. That has led to many more ex-contractors in the market suddenly looking for permanent work. This week, we received 200 applications for one finance director role. In one day. That’s unheard of. And it’s creating issues for clients, contractors and recruitment companies.

• 52% of firms are using CEST to assess IR35 status despite 75% of contractors believing its results inaccurate. CEST (Check Employment Status for Tax) is a government tool designed to help you decide who falls within IR35. It’s had some well publicised reliability problems which mean that, even when the determination of the CEST tool is correct, there’s so much scepticism contractors don’t believe it’s accurate.

• 23% of contractors report that their clients have banned engagements with limited companies. Coming out of a pandemic, businesses need a flexible workforce. Clients and contractors alike need short term, interim roles. IR35 doesn’t stop them happening. But it does make everyone scared of getting it wrong.

• 72% of contractors will quote a separate rate for ‘inside IR35’ arrangements. This creates a disparity between savvy contractors who understand IR35 and charge a higher day rate, and others still charging their old rate in blissful ignorance of IR35. That potentially stores up trouble for contractor, client and agency.

• Only 8% of contractors said they would be happy to use an umbrella company. But then, if contractors aren’t looking at IR35, they’re probably not looking at using a (compliant) umbrella company either.

• 74% of contractors cannot tell if an umbrella company is compliant. It’s fair to say that we just haven’t seen enough discussion of the issues.

IR35. What can you do now?

1. Assess your situation. How many contractors have you got? How long is left on their assignment? How flexible do you need your workforce to be post-April? If you haven’t already done so, ask the questions that help you understand the scale of the issue.

2. Start a conversation with your people: it’s possible there’s talent you want to keep within your business that’s already looking elsewhere because they’ve not heard anything from you re IR35. Acting fast could be the most important talent retention step you take this year, and could help you avoid losing integral people within your workforce.

3. Talk to the relevant teams in your organisation: Every part of the business needs to be in step on this. If your teams aren’t fully up to speed with IR35, then when your hiring manager asks the talent manager for an interim appointment, one of two things might happen:

• They inadvertently hire someone within the scope of IR35, opening you up to possible penalties; or
• They need to start IR35 compliance checks midway through recruitment – and in a market that’s moving as fast as this one, that could mean you lose the candidate and a degree of reputation.

4. Start a conversation with us. We’re now well experienced in recruiting for finance (and other) roles in an IR35 compliant way. We can handhold you through the process. Inside or outside IR35, we can help you recruit without risk.

Talk to us

IR35 isn’t going away. So it’s important we all get it right. We’d love to help you do the same.

For help in making your finance recruitment IR35 compliant, talk to jackie@zacharydaniels.co.uk or winston@zacharydaniels.co.uk.