Tax  

IR35 reform is here: are you prepared?

  • Describe the steps needed to prepare for IR35 reform
  • Explain what it means to be 'inside IR35'
  • Identify when IR35 reform takes effect
CPD
Approx.30min

Until an SDS has been issued, the end client will hold onto the fee-payer’s responsibilities. This means they are ultimately liable for IR35 - irrespective of whether they are the fee-payer or not - and will be tasked with deducting the correct amount of tax from contractors working inside IR35 and paying this to HMRC. 

It therefore goes without saying that the sooner a firm sends compliant SDS documents to the parties requiring one, the better.

Set up compliant payroll processes

Following on from my previous point, if a contractor is deemed inside IR35 - but only after a well-informed IR35 status review - they will be taxed PAYE. This tax must be subtracted from their timesheet or invoice and sent to HMRC, with the contractor paid what’s left. These processes need to be in place by 6 April to avoid a myriad of problems and, in turn, non-compliance. 

While in many cases, fee-paying recruitment agencies will be responsible for orchestrating this and making sure it is done in a compliant manner, the end client has a duty to outsource this activity to a trusted party should they not want to handle it themselves. 

Maintain a clear audit trail

It is clear that HMRC are determined to raise a significant amount of tax revenue from reform - the apparent £1.3bn the exchequer believes it is missing out on due to non-compliance currently is testament to this. 

As a result, businesses would be wise to maintain a clear, traceable and transparent audit trail with regards to all their IR35 activity. Being able to show HMRC, in the event of an investigation, that everything has been done by the book and compliantly will be key in stopping an enquiry in its tracks. 

Explore ways to manage IR35 risk 

As briefly mentioned earlier on, the worry for businesses is the IR35 risk they will soon shoulder. 

IR35 liability can mount up considerably, with the cost of non-compliance running into tens of thousands (if not much more) just for one contractor. 

However, this is not a reason not to engage contractors and make risk-averse policy decisions, though; more an incentive for businesses to mitigate the risk and focus on ways to protect the liability they will soon carry.

By taking the right steps, this is simple enough to achieve. Businesses can protect outside IR35 determinations with IR35 insurance, which will cover the cost of expert advice, legal representation along with any resulting fines, interest and tax liabilities owed to HMRC.