There’s a new speed bump in compliance for private sector companies that comes into effect on 6th April 2020. IR35 – or ‘off-payroll working’ – is designed to close a tax loophole that allows contractors who are effectively working for a company to avoid paying the same level of income tax and National Insurance contributions (NICs) as someone actually working for the company. The goal, from HMRC’s perspective, is to level the playing field between employees and contractors.
Who does IR35 affect?
The changes introduced by IR35 in the private sector will predominantly affect individuals selling their services to companies via a Personal Service Company (PSC). But the tax liability will shift from those individuals to the companies paying their fees. Where a company is using a recruiter to manage (and pay) freelancers, it’s the company’s responsibility to complete a ‘status determination’ to ascertain whether IR35 applies, and then the recruiters responsibility to deduct any taxes if it does. If a contractor is incorrectly deemed to fall outside of IR35, HMRC can collect dues (including back taxes) from the recruitment agency, and even from the company directly in some instances. Previously, PSCs self-evaluated whether or not they were ‘off-payroll workers’ and were liable for the tax implications.
How do businesses find out which contractors are affected by IR35?
HMRC has developed a tool designed to determine whether a PSC is acting as an unnecessary intermediary. But, the tool has drawn much criticism over its effectiveness. Even HMRC admits their tool is only 85% accurate. Some believe even that may be an overstatement. In response we’ve developed the Futureheads IR35 Assessment Tool.
What are the benefits of the Futureheads IR35 Assessment Tool?
With questioning drawn up with employment law specialists, the Futureheads IR35 Assessment Tool is more accurate than CEST (HMRC’s tool). It also offers a number of protections you’ll not get from CEST, such as insuring us (as the Fee Payer) to protect the entire supply chain and automating the flow of information to all parties, satisfying your legal obligations as a client. The Futureheads IR35 Assessment Tool also generates a Status Determination Statement (SDS) as additional proof of compliance. And it simplifies the assessment process with just 16 questions (versus CEST’s 40-plus questions).
What other risks does IR35 introduce?
The central worry for an end client (as the fee-paying company) is that all tax liability for contractors will shift to them under IR35. If a PSC is incorrectly deemed to be outside IR35 rules and the relevant deductions are not made at the time of payment, HMRC can collect dues from the end client. The burden of proof of ‘Reasonable Care’ will also fall to the end client. And the end client will also have to manage communication and disputes with PSCs over their status. Ultimately, all liabilities are passed back up the supply chain to the end client.
Futureheads’ role as a ‘Partner in Compliance’
We believe that our processes to equip clients for the IR35 changes are thorough and robust. Rather than offering our clients a bolt-on solution, we aim to be a ‘Partner in Compliance’. We can develop tailored process mapping and governance for each business, guiding each client to adopt a best practice assessment process and a framework in which to adapt to the new legislation. We work within each individual client’s policies and processes to cause the minimum of disruption while offering the maximum level of compliance.
The Futureheads 5i approach to ‘Off Payroll Working’
In order to tailor solutions to our clients, we have developed the 5i Off-Payroll Worker process framework. Consisting of five phases – information, investigation, initiatives, implementation and improvement – it ensures that we are able to develop custom end-to-end compliance for our clients. The process ensures a fluid and comprehensive review of liabilities followed by searching analysis and thorough planning. This results in robust policies, training, communication and protection. Our mission as a trusted ‘Partner in Compliance’ is continuous improvement and delivery of ever better efficiency.
Isn’t there another way?
It’s often the case that new legislation can be dealt with via an off-the-shelf solution that batch processes a company into compliance with the minimum of fuss and interruption. You may even be able to sidestep liability altogether. But with IR35 there’s nowhere to hide. Blanket decisions about eligibility are impossible and the movement of liability to the end client means there is no protection if reasonable care cannot be demonstrated. The truth is that compliance with IR35 is vital to protect fee-paying companies from additional potential tax liabilities.
To talk to Futureheads about becoming your ‘Partner in Compliance’ please email firstname.lastname@example.org
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