Businesses need to be able to operate under minimal pressure if they are to stand the best chance of surviving and thriving.
IR35 presents a troubling hurdle, then, for many. Businesses that make use of limited company contractors must now navigate significant regulatory change.
Some businesses are under considerable stress because of this, and it’s vital they know how to grapple with the transition.
Timeline of the off-payroll review
What is IR35?
Under the old rules, independent contractors operating under limited companies, the self-employed individuals in question, had autonomy over how they managed their tax status and dealings with HMRC.
However, the incoming reforms will include such contractors under the umbrella of IR35. This will see a shift in responsibility for assessing workers' employment status for tax purposes from the individual employees to the employers themselves.
Tax risks regarding independent contractors will lie with the businesses and their HR departments. They will hold sole responsibility for assessing the employment status of their independent contractors, and the limited companies they might be operating under.
In addition to this is the fact that the new laws require businesses to consider whether such workers should be considered one of their employees for tax and income purposes, if they were not operating under a limited company.
The answer to this will need to be reflected in an SDS (a Status Determination Order) that will be issued to the contractors by the businesses, should they wish to continue their employment.
This is a completely new responsibility for HR teams. Businesses are being asked to perform a task that they have never had to tackle before, and there is significant regulatory risk in the case of non-compliance.
How, then, can HR professionals get it right?
Taking a streamlined approach
There are several prudent steps that HR professionals and businesses can take in order to avoid an IR35-related headache down the line. They include:
- Use legal technology to assess one’s workforce – this will in turn save time and expenses on unnecessary and avoidable legal steps, allowing businesses to maintain a smooth transition to operate under the new rules.
- Take a holistic view of one’s existing limited company contractor population – this will enable businesses to look at the bigger picture and ensure nothing is overlooked.
- Look into seeking support from insurance products to ensure that any regulatory and tax risk is covered in light of hiccups down the line.
- And most importantly, take action now and not in April 2021, while there is still time.
In the face of this regulatory shift, many businesses have been concerned that this will all lead to an unsustainable increase to the workload of their HR departments. As a result of this, many over the past year have opted to stop using company contractors entirely.
While many see this as a move for self-preservation, I would argue it is an unnecessarily rash decision.
If the pandemic taught us anything, it is that the UK labour market, dynamic as it is, is reliant now more than ever on flexible labour. This flexibility is an important tool for companies if they are to weather the storm. Businesses need more options, not fewer.
That being said, the changes are coming. There is unfortunately no escaping this fact. HR professionals that take a planned approach to IR35 ahead of April and follow the steps above will put themselves in the best position.
The risk of Employment Tribunal claims from contractors who were formerly self-employed and in business on their own account – but have now been mistakenly classified as ‘limb b’ workers – can be avoided if a review of the resourcing of their workforce is taken with the changes in mind.
Michael Paulin is the founder of Wolf IR35 Legal Services and a tax barrister