This month the Finance Bill passed through its report stage and third reading in the House of Commons with-out a successful challenge to the clause relating to IR35. This means that postponed changes to the off-payroll working rules will now be rolled out in the private sector from 6 April 2021.
While the coronavirus pandemic bought contractors and hirers an extra year to get themselves ready, the fact is, that with just weeks to go, many were still unprepared for the original IR35 deadline back in April.
For recruiters, the pressure is now on not to let history repeat itself. Agencies have a crucial role to play supporting both clients and contractors to set out a clear timeline and make the necessary preparations that will ensure both continuity and compliance.
Learning from the past
Our ‘Ticking Timebomb’ research this time last year found that private sector businesses were woefully underprepared for the upcoming changes to IR35, with over half (59%) planning short cuts like putting a blanket ban on working with contractors.
By March, many still looked to be repeating mistakes that had already been made during the public sector roll out of the changes in 2017. At this time, a number of organisations such as the team behind HS2 made knee jerk blanket insider IR35 assessments of their contractors, effectively reducing their take home pay. This resulted in project delays as the workforce left to find employers that would treat them more fairly and value their expertise.
The UK’s contractor talent pool was also becoming resentful of how things were being handled, with many beginning to share their negative experience of clients and agencies, which were managing the rule changes unfairly, online.
Jesse Norman MP, Financial Secretary to the Treasury, has since been clear that blanket assessments are not be sufficient this time around. He stated, in response to concerns raised by MPs over this approach, that “The Government have been very clear that determinations must be based on an individual’s contractual terms and actual working arrangements.” He has also commissioned a report into the introduction of the changes to the public sector, which will hopefully deliver learnings for both hirers and HMRC alike in time for lessons to be learnt in 2021.
Now we have a confirmed date to plan towards, contractors will be looking to their agencies and hirers for clarity on where they stand. This puts pressure on businesses to get their IR35 assessments right. With recruitment teams acting as the middleman between the two, the priority for them should be coaching their clients through the process and encouraging them to make the most of the extra time. The very clear instruction from the government is that hirers should take ‘reasonable care’ to make a thorough, rather than knee-jerk, response.
What should recruiters’ next steps be?
Recruiter training on IR35 should have taken place ahead of the proposed April 2020 roll out, however teams should take this as an opportunity to brush up on their knowledge of the legislation changes. It is critical that everyone in the office has a certain level of understanding, as they will likely need to provide consultancy around the issues for both hirers and contractors in future.
While contractors will remain responsible for paying the right amount of tax up until April 2021, some businesses will have already made the necessary assessments in preparation for the initial deadline. To ensure greater engagement and agreement throughout the process, we would suggest that recruiters now start actively involving contractors in conversations around IR35, as well as running hiring decisions past them so that both parties agree on the facts and parameters of the relationship. By providing a greater level of clarity between both parties, recruiters can help clients to retain their contractor talent, while also ensuring satisfaction with their own contractor talent pool.
If a client has not already started to prepare, recruiters should continue encouraging them to take a case by case evaluation of individuals IR35 status, as this will ensure they meet the “reasonable care” threshold. Seeking specialist support is advisable, however it’s important recruitment teams have all the facts and can point businesses in the right direction. There are a lot of third parties now offering support that do not necessarily have the right level of experience or qualifications to do so.
With that in mind, it’s worth thinking about the suppliers you currently work with and whether they can be counted on to manage IR35 compliantly. Checking for FCSA accreditation is a good place to start, especially with umbrella and payroll companies. It is also worth considering whether accountancy services that you recommend really understand the new rules.
It is likely that we will see a hybrid landscape emerge over the next few years in which contractors find themselves moving between inside and outside IR35 roles. If this is the case, you will need suppliers with skill, experience and agility. By working with a partner that has the understanding and ability to work with contractors on both an umbrella and PSC basis, recruiters will be able focus their attention where it matters, on building fostering trusted relationships with clients and contractors.
Recruiters now have a chance to position themselves as a real partner of choice for clients who need support with IR35. Businesses will be looking for expert advice throughout the assessment process, while contractors will be seeking agencies that will help them to have open and honest conversations around the changes and how it will impact them. Agencies that can achieve this will be rewarded with ongoing trust from their existing clients, as well as a chance to win new business from firms that are less proactive.