OFF-PAYROLL REFORMS – WHAT YOU NEED TO KNOW (IN LESS THAN 2 MINUTES)

We’re here to help you understand the potential impact of the off-payroll reforms. Here’s a quick briefing from our expert, Chris James, on the essential facts.

#1 – The final legislation should be confirmed in the Autumn Statement, likely to be late October or early November, though a date has not yet been set. The new rules are planned to become law on 6th April 2020.

#2 – IR35 criteria isn’t changing. This is a common misconception. What’s changing is the liability for determining status. At present, it’s the responsibility of the contractor and their PSC (their limited company) to determine IR35 status. Under the new rules, all parties in the supply chain will be liable, including end engagers.

#3 – The financial strength and track record of the supply chain is more relevant than ever, and will lead some end engagers to reassess who they work with and in what manner.

#4 – End engagers and recruitment agencies need to be involved in the assessment process, something which they may not be not set up for at present. The assessment would need to be undertaken for each new assignment and each extension, and when the assignment changes. This means new processes and procedures for end engagers, agencies and contractors.

#5 – Because the rules around IR35 status are complex, it’s likely that some contractors currently outside IR35 will be deemed to be inside. This eradicates the compliance risk in the short-term, but it can lead to other issues.

#6 – Workers who are deemed to be inside IR35 will usually have to pay more tax. This means they could cease to work for the end engager, which leaves them with a skills gap, or end engagers could have to pay more for their contractors. Or end engagers could have to offer employment to people they currently work with on a contractor basis, which could result in less flexibility in their workforce.

#7 – The scale of the issue depends on how many contractors a business has, and how reliant it is on the contractor workforce.

#8 – If the contractor is caught by IR35, they can still work as a limited company contractor but the mechanics of them getting paid this way are manual and painful. Often, the business paying the PSC will insist that the contractor gets paid through PAYE, either as an agency employee or through an Umbrella employer.

#9 – If a contractor can no longer work through their PSC because the end user has made a policy decision to stop working with contractors that way, they will need to go on to agency PAYE (become an employee) or use a compliant, FCSA-accredited Umbrella company.

#10 – It’s vital to prepare for the changes now. While there is still a chance that the reforms may not go ahead, or may be delayed, it’s slim. End engagers and agencies alike must take steps now to refresh contracts and working practices and to build the assessment requirements into business-as-usual.

Hopefully this brief update has been useful – if you are an end engager, recruitment agency or contractor and you want to discuss the detail, please get in touch

You may also find it helpful to take a look at our Q&A with Chris James.

 

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Chris James

About the author

Chris James FCA is an IPSE accredited, award-winning chartered accountant. He is Head of Accounting Operations at JSA Group, which provides accounting, payroll, umbrella and business advisory services to small businesses, contractors and freelancers across the UK. He is also chairman of the FCSA, the premier compliance accreditation body in the recruitment supply chain sector.