Understanding IR35 not only determines how contractors run their business and how much tax they pay, but also supports organisations in retaining flexible workers who operate through their own limited companies or personal service companies.
In April 2017, the Government shifted the responsibility for determining IR35 status away from the contractor and onto public sector clients, meaning the risk now sat with them – something which could soon extend to the entire private sector.
The long-awaited HMRC consultation into off-payroll working in the private sector and tackling non-compliance has now been published, which on the surface, appears to favour an extension of the current measures.
HMRC believe the reforms to be a success, claiming an additional 90,000 contractors have been added to the payroll of public bodies, yet this figure will also include numerous incorrect assessments. Whatever HMRC’s decision, it’s crucial that private sector organisations avoid public sector mistakes due to a lack of understanding and failure to prepare.
Contractual considerations for your business
- Are you obliged to offer further work once the assignment completes? If yes, then HMRC would deem it employment as contractors wouldn’t expect continued work.
- How do you pay contractors and would they receive overtime or a bonus? Genuine contractors are paid for a set piece of work. This depends on the employment relationship, as professional services, for example, usually charge on a time basis rather than a fixed fee.
- Is the contractor subject to appraisal, review, grievance and disciplinary procedures? A contractor will normally provide updates of progress yet subjecting them to any workplace procedures suggests employed status.
- Will the contractor receive statutory entitlements or benefits and have use of staff facilities? Contractors don’t receive statutory sick pay or holiday pay and don’t expect use of staff facilities e.g. a company gym.
Failing to prepare saw the public sector suffer contractor walk outs, project delays and cancellations and additional costs through pay rate increases. Assessments must be made on an assignment by assignment basis, ensuring that contractual T&Cs accurately reflect working conditions.
To help the private sector prepare, our Contractor’s division has produced an exclusive guide for businesses and are on hand to provide support and advice around effectively managing your contractor workforce and avoiding potential tax liabilities and other increased costs. For more information, call Chris Bloor at Champion Contractors on 0161 703 2535 or email firstname.lastname@example.org.