IR35 (Off-Payroll)

IR35 was introduced by HM Revenue & Customs (HMRC) in April 2000. It affects all contractors and freelancers who do not meet their definition of ‘self-employment’. The legislation was implemented to stop contractors working as disguised employees, by taxing them at a rate similar to employment.

Until recently, genuine self-employed contractors could choose to work either inside or outside IR35. Their decision would depend on their working circumstances and the contract between their limited company and recruitment agency. However, changes to IR35 (referred to as ‘off-payroll working’) were implemented in the public sector from April 2017, and the same changes will be rolled out into the private sector in April 2021.

Off-Payroll in the Public Sector (2017)

From April 2017, the responsibility of assessing the IR35 status of assignments in the public sector was moved from the contractor to the public sector body (the end-client). This means every public sector organisation engaging with temporary workers is required to make an assessment based on each contract.

While blanket assessments were considered unlawful by HMRC, a significant number of contractors were suddenly deemed inside IR35. As a result, contracting through a limited company was no longer the most tax-efficient way for them to operate. Instead, many were required to use an umbrella company (PAYE) for the remainder of their assignment.

The changes to off-payroll legislation in the public sector also had a significant impact on recruitment agencies. While it was the end-client that was responsible for making the IR35 assessments, it became the responsibility of the fee payer (usually the agency) to ensure their candidates’ pay the correct amount of tax and NICs. And, should recruitment agencies make any unlawful payments to their candidates’, they could face the unpaid tax liability.

Off-Payroll in the Private Sector (2021)

The government announced that off-payroll legislation changes would be rolled out into the private sector in April 2020. However, this date was delayed for 12 months as a result of the coronavirus pandemic.

From 6^th April 2021, any private sector organisation (only if they’re considered medium or large by HMRC) engaging with temporary workers will be required to make IR35 assessments for each role. And, just like in the public sector, every recruitment agency will be required to deduct tax and NICs on engagements that are caught by IR35. Your agency will be held liable if you do not apply the rules correctly.

The government’s announcement to delay the changes to off-payroll legislation in the private sector came just weeks before the legislation was set to be rolled out on 6^th April 2020. Therefore, despite 12-months’ respite, your agency should already be prepared and have procedures in place.

It is important to remember that the legislation applies to contracts that run beyond 6^th April 2021, and any payments made to candidates after this date. Therefore, if you have candidates on a 12-month contract at the moment, you may need to take action imminently.

Recruitment agencies like yours should work with end-clients and suppliers to protect the private sector. And, the upcoming changes could significantly impact and reduce the take home pay of a large proportion of your temporary candidates.

The following steps have been written to help you manage the off-payroll legislations.

1. Understand the best payroll options for your candidates – Get a good understanding of the operating structures for temporary workers inside and outside IR35 (personal service company, umbrella company, sole trader, etc.) You can then refer them with confidence.
2. Educate your clients and help them with their Status Determination Statements – It’s vital your clients understand their responsibilities, and especially how to produce accurate Status Determination Statements for every temporary role. You could help your clients’ by suggesting likely status profiles, such as: ‘likely inside IR35’, ‘likely outside IR35’, or ‘borderline’. This will eliminate surprises. Churchill Knight is partnered with an IR35 specialist, and would we would be delighted to help your agency and end-clients. Please contact us for more information.
3. Be upfront with your candidates – Failure to alert your candidates could result in them leaving contracting altogether. Be honest with them, and if you can negotiate an uplift in their rate to subsidise their decreased pay retention (if they’re deemed inside IR35), they’re sure to be grateful.
4. Keep up to date with the latest news – The 12-month delay to off-payroll changes in the private sector came as a shock to many, especially as it was so last-minute. This highlights why it is so important you keep up to date with the latest developments and legislation, because who knows what could be just around the corner?
5. Compile a dependable Preferred Supplier List (PSL) – Your agency must have a trustworthy and up to date PSL. Churchill Knight is proud to be an accredited member of the FCSA. We recommend you only choose FCSA accredited accountants and payroll providers for your PSL. After all, you don’t need to carry out vetting procedures or due diligence – because the FCSA has done this for you.

Churchill Knight and all of our associated companies* are proudly accredited by the Freelancer & Contractor Services Association (FCSA). The FCSA is a leading professional body that is committed to ensuring the supply chain of temporary workers is ethical and compliant with HMRC rules and regulations. To achieve this prestigious accreditation, all of our companies have undergone comprehensive audits by independent employment and legal professionals.

FCSA accreditation says it all – its members are compliant, ethical and have both your agencies and your candidates’ best interests at heart. Every business under the Churchill Knight Group falls into this category.