Do you need to consider off-payroll working?
Sometimes, your business may engage suppliers who deliver services to you personally, using the owners or other shareholders of that business. If your firm is not a small company, you may need to consider the Off-payroll legislation if that's the case.
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The legislation was applied to public sector organisations in April 2017, and four years later, in April 2021, it was rolled out to medium-sized and large firms in the private sector. If you don't consider the rules, you could be building up tax bills you don't know about. Do things properly, and you should be fine.
These rules are sometimes called "IR35", a throwback to the similar "deemed employment" type Intermediaries Legislation introduced in April 2000 after the then Inland Revenue announced the proposed rules in note number 35. The original legislation still applies to contractors working for small companies.
Are you engaging intermediaries?
If your company is medium or large and you are engaging individuals who provide services to your company via an intermediary, then the answer is yes, you are engaging intermediaries. An intermediary means the 'worker' has a material interest in the company. The typical scenario is a contractor operating via their own limited company, although partnerships can also be intermediaries.
If you are answering 'yes', you'll need to implement some compliance practices for off-payroll workers. Here are six simple steps which may help.
Step 1: Educate yourself and key stakeholders
Start by researching the relevant legislation and its implications. Then, organise training sessions for your HR team, finance department, senior management and hiring managers to ensure everyone involved understands how IR35 may effect your organisation. Make sure to collate relevant HMRC guidelines and legislative updates.
Step 2: Audit your workforce
Identify all contractors and freelancers within your organisation and review existing contracts (including via third parties) and working practices.
Step 3: Develop a robust assessment process
Create or adopt a reliable tool for determining IR35 status of your employees, contractors and freelancers. Ensure the process is documented and consistently applied. As part of this process, include measures for dispute resolution.
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Step 4: Update policies and procedures
Revise your recruitment processes to account for IR35 considerations and develop new procedures when engaging contractors to ensure you understand their employment status. Create guidelines for ongoing monitoring and status reassessment of workers.
Step 5: Establish ongoing compliance measures
Set up regular audits of contractor engagements, keeping an eye on any changes to the rules. It is also important to implement annual IR35 compliance training throughout the business.
Step 6: Prepare for future HMRC compliance checks
Independently stress-test your compliance process annually and consider specific tax defence investigation policies. Make sure to keep records of all training and compliance activity.
But remember: off-payroll compliance is an ongoing process and working practices must continue to reflect the written contract. Regularly monitoring the status of contractors is vital. It is not a one-time task and requires continuous attention and fine-tuning as legislation and your organisation's needs evolve.
Dave Chaplin is CEO of IR35 compliance solution IR35 Shield
