The IR35 legislation impacting the private sector from April 2021 is dramatically changing the landscape for recruiters and hirers engaging with freelancers and contractors.
While it is prudent to manage the new tax risks associated with the changes, you must not lose sight of the commercial risk and benefits this change presents.
Education is key
Educate yourself and all the client-facing people within your business on the rule changes and what it means for you. Ensure you provide them with enough knowledge to hold constructive conversations with clients, potential clients, and candidates. It is important that you understand their concerns and appetite for risk.
Supply chain engagement is critical
Engage with your supply chains and use your cumulative knowledge to influence how your clients react to the changes. Understand how your partners plan to deal with the change and what solutions they have that can help you and your clients, and consider how you can jointly engage with your clients to provide them with the level of support they may be expecting.
Engage with your clients now
Once you have educated your own team and partnered with any relevant specialists, now is the time to re-engage with your clients if you haven’t already started. Your competitors will be doing this, so make sure you are seen to be meeting the challenge head-on and leading the debate. It is important that you understand and try to influence how your clients plan to adhere to the rules. For example:
- Is the hirer a small company and so falls outside the new IR35 rules potentially leaving your freelancer or contractor free to remain working through their PSC? Under the new IR35 reforms, a company is defined as small in line with the definition in the Companies Act 2006, which states that during a 12-month period, a business is deemed to be a ‘small’ company if it meets 2 or more of the following criteria:
- Turnover – not more than £10.2 million
- Balance sheet total – not more than 5.1 million
- Number of employees – no more than 50.
- Have they identified which category of workers will need a status determination, and can you help?
- Have they identified which workers are likely to be ‘inside IR35’ or those who may need changes to their working practices, and what does this mean for you?
- Have they considered the impact on contractor pay rates for those considered ‘inside IR35’ (and how will you and your client work together if the contractor seeks to challenge the determination)?
- Will there be any additional costs to your own business to retain key contractors?
- Have your clients assessed the optimal timing of moving workers to different contracting solutions where contractors are considered ‘inside IR35’?
- Does your team understand the consequences of using solutions that are high risk or new to the market and untested, and the risks of those solutions being challenged by HMRC?
You need to understand now if any of your clients still have no plan, what this means for you, and how you might help them.
If they have no plan, this will cause you and your candidates’ issues later down the line.
To avoid serious difficulties as you approach April 2021 it is now critical to implement your plans as soon as possible to navigate these changes.
The additional key tips at this point are as follows:
- Effective and timely management of employment status determination
- In these financially difficult times, assessing the financial strength of your suppliers and customers
- Finding the best employer/umbrella company for your inside IR35 workers.
In the next blog, we address how best to manage these key areas for your business.