The ongoing pandemic has resulted in companies having to respond quickly to changing work practices in many different industries across the UK. And as we all settle into our ‘new normal’, at least for now, short-term highly-skilled help is in demand.
Times like these are when hiring a PSC, or IT contractor, can have big benefits to your business. But the impending IR35 legislation changes have many companies worried about their potential new responsibilities. So in this blog we’ll tell you a bit about IR35 and how to navigate it to ensure you’re able to snag the best talent in 2021.
What Is IR35?
IR35 is a piece of legislation designed to tackle ‘disguised remuneration’, essentially that some contractors working for their own PSCs behave more like an employee of the engaging company, and therefore should pay tax in the same way as an employee.
You can learn more about IR35 here.
What Is Changing in April 2021?
From the 6th April 2021 the responsibility of the IR35 determination for a PSC will be decided by the engaging company. Along with this responsibility is liability, and that’s what has made companies who hire contractors so cautious lately.
While many companies are choosing to take, what they perceive to be, the ‘safe’ option of either blanket labelling their contractors ‘inside IR35’ or not hiring any contractors at all, these are not necessarily the ‘best’ options.
Why Does IR35 Determination Matter So Much?
We think it’s important for engaging companies to understand why contractors prefer to work outside IR35. A contractor is an individual who is working for their own company and as such, they have more risk:
- they have a contract end date
- they do not receive any company perks or pension
- they must provide their own equipment, cover their travel costs, and administer their own company affairs
- their status within your company is temporary
If you label them inside IR35 you’re saying that they must pay tax as if they were employed, but receive none of the working rights, benefits or security of an employed person. Essentially your contractors are opting to work in a risky environment for the benefit of your company, which requires short term talent to achieve results. And when a contractor is caught by IR35 they are sometimes financially better off leaving their limited company and becoming an employee elsewhere.
What Can We Do To Ensure Correct Determinations
The Government released an online tool to help engaging companies determine IR35 status… but it doesn’t work… *Article: ‘CEST exposed as hopelessly unreliable using HMRC’s own test data obtained via FOI’ – “Only 14 out of the 24 cases (58%) gave the correct answer, for the right reasons, by CEST: our analysis”
The best option is to learn a little about IR35, appoint someone in your company to train as your IR35 expert (there is an affordable on-demand course from The Payroll Centre here) and determine IR35 status on a case by case basis. This table summarises the key points:
| Inside IR35 | Outside IR35 | |
| Is the contractor paid on the basis of time spent? | No | Yes |
| Is the contractor given set hours to work? | Yes | No |
| Is the contractor allowed to supply a substitute to do their work if ill or on holiday? | No | Yes |
| Will the contractor attend staff parties or meetings? | Yes | No |
| Is the engaging company telling the contractor how to carry out the work? | Yes | No |
| Do you supply your own equipment? | No | Yes |
What If We Are A ‘Small Company’?
If you’re classed as a ‘Small Company’ (as defined by the Companies Act 2006) we have some good news for you, you do not need to comply with IR35 reform, you may allow your contractors to determine their own IR35 status. This is great news because it means less work for you, the contractor can work outside IR35 if deemed to be the correct determination, and your ad will attract the best of the best thanks to this flexibility,
In short, the best talent are going to have the first choice of contracts outside IR35, if you want the best talent it’s worth putting in a little time to understanding IR35 and making a fair determination.
© 2019 Warr & Co Chartered Accountants. Warr & Co Chartered Accountants is a member of The Institute of Chartered Accountants in England & Wales (ICAEW). Whilst the information detailed here is updated regularly to ensure it remains factually correct, it does not in any way constitute specific advice and no responsibility shall be accepted for any actions taken directly as a consequence of reading it. If you would like to discuss any of the points raised and / or engage our services in providing advice specific to your personal circumstances, please feel free to contact any one of the partners on 0161 477 6789 or contact us via our website forms. Warr & Co Chartered Accountants are registered to carry our audit work in the UK, our audit registration number is C002961684, for more information please visit www.auditregister.org.uk.