How to stay Off-Payroll compliant so that firms can hire with confidence

© Supinda Chuenmano

Dave Chaplin, CEO of IR35 Shield and author of IR35 & Off-Payroll Explained, urges hirers to act now and prepare for the new Off-Payroll legislation

The arrival of a pandemic forced the Government to press the pause button on rolling out the Off-Payroll legislation to the private sector last April 2020. But the new rules have entered into statute and will come into effect in April 2021. Taking a proactive approach to Off-Payroll compliance now will help ensure firms retain their contingent workforce whilst minimising disruption to projects and mitigate rising costs.

Learn from the public sector fallout

When the legislation came into effect in the public sector in 2017, failure to prepare properly by hiring firms resulted in the widespread adoption of non-compliant blanket approaches to status assessments, which saw contractors abandoning public sector projects, leading to recruitment struggles and disruption and delay to projects.

Hiring firms in the private sector planning a similar approach must consider the following issues:

  • Contractors who believe they are outside IR35 are highly unlikely to accept an ‘inside IR35’ contract
  • Contractors who do accept an ‘inside IR35’ engagement will likely increase their rates to compensate accompanying tax increases and inability to offset their expenses
  • Firms heavily reliant on contingent labour and who cannot afford to pay up to 40% more for the same skills must adopt a compliance regime

Therefore, it is imperative that firms need to consider the risks and how their planned approach to the Off-Payroll legislation will impact their business. Can they handle the disruption and damage associated with a blanket approach? Or is a considered compliance process necessary?

How long do we have to prepare?

April 6th 2021 is the immovable deadline for firms opting to comply with the Off-Payroll legislation to get their house in order, although each firms timeline depends heavily on the length of contingent engagements.

Contracts that begin before April 2021 but overlap beyond this point present a tax risk to companies that haven’t confirmed the IR35 status of engagements through adequate preparation and the implementation of robust compliance processes.

This means companies hiring contractors on three-month contracts feasibly have until January 2021 to establish compliance protocol, whereas those engaging contractors on six-month contracts have until October 2020, and so forth. To afford more preparation time, your company might consider temporarily issuing short-term contracts, an approach that many will likely have already taken given the current COVID-19 situation.

Once you have reviewed your contract engagements, you will have a better idea of how much time you have left to get organised. However, it is advisable for businesses to start preparing well in advance so that they can set up an effective and comprehensive compliance regime without any last-minute panic.

How to find a quality compliance solution/provider

It is anticipated that many firms will likely still take a knee-jerk response to the new legislation characterised by blanked measures. Therefore, an accurate and fair status assessment courtesy of a quality compliance solution or provider will have a significant amount of pulling power in the contract market. There are a number of characteristics to look for in a compliance service, such as:

  • Demonstrably accurate status assessments
  • Compliance services that offer ongoing protection
  • Access to tailored IR35 advice and guidance
  • Services underwritten by reputable insurers

Some IR35 legal specialists will offer such a service but IR35 expertise is in scarce supply, and few organisations will have the capacity to assume the work required of them by firms with large flexible workforces. You can find specialist, scalable compliance solutions online too which will provide easy and affordable access to the necessary expertise.

While HMRC also advocates its Check Employment Status for Tax (CEST) tool for status assessments, the consensus within the contract market is that the tool is flawed and skewed towards delivering ‘inside IR35’ determinations. Furthermore, the taxman has been known to challenge CEST’s outcomes, which has led to significant tax bills for some of its users.

How to evaluate your contingent workforce

It is important to establish which contractors require status assessments – i.e. limited company contractors who you intend to retain beyond April 2021. At this stage, an initial assessment of each engagement based on the information at hand can help to identify which contracts pose problems and which projects might be at risk because of the Off-Payroll rules.

Having evaluated your contingent workforce, a quality compliance solution or provider can help identify engagements posing an IR35 risk and suggest risk-mitigating wholesale changes to working conditions. Changes at this stage can prove highly beneficial, though they must be rigidly applied in practice and reflected in updated contracts.

Despite changes made to working practices, it may be impossible to retain certain contractors on an ‘outside IR35’ basis. Though contractors can obviously work within scope of the legislation, the costs of such engagements need to be considered by companies, with some contractors likely to increase their rates in response to their deemed status and subsequent tax increase.

Address engagements before April

Once you have carried out full status assessments of your contracting workforce and talked to your contractors you will have a clearer idea of the impact the legislation will have on your business and how to navigate it. Knowing how much the impact of ‘inside IR35’ will cost you financially will equip you to deal with any inevitable contract rate renegotiations.

Contractors who you cannot come to an agreement with will need to be served termination notices, while an engagement model for those remaining on an ‘inside IR35’ basis will need to be agreed. With many non-compliant payroll schemes popping up to take advantage of the legislation, the best and safest course of action for firms seeking to engage employee-like temporary workers is to simply issue fixed-term employment contracts.

Whilst all of the above needs to happen before April 2021, Off-Payroll compliance is an ongoing process and working practices must continue to reflect the written contract to effectively mitigate risk. Monitoring the status of contractors on an ongoing basis is the only way to ensure none of them go awry, threatening you with an unexpected tax bill up to six years later.

Off-Payroll compliance may seem onerous but, it is a relatively swift and simple process for businesses that act early and adopt a quality compliance solution. Fulfilling these requirements should ensure your company continues to benefit from accessing talent and skills on tap without suffering any damage or disruption that the Off-Payroll legislation threatens.


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