In the Autumn Statement 2016, the government announced reforms to IR35 tax legislation which will affect the way in which public authorities and their staffing suppliers pay personal service company (PSC) contractors. The changes will move responsibility for assessing IR35 status, and paying the correct tax and National Insurance, to the body paying the PSC. Where a PSC assignment falls within IR35 the person paying the fee to the PSC for the worker’s services will be treated as the employer for tax, NICs and Employment Allowance.
The changes will affect not only public authorities but also any staffing supplier and/or payment intermediary involved in the contractual chain supplying the PSC’s services.
Our 10 point checklist will help you determine how ready you are for the changes, which come in to force on 6 April 2017. In addition, there are several key danger areas of which staffing companies need to be wary.
IR35 10 point checklist
- Have you checked whether supplies by you as a staffing company to consultancies are then on-supplied to the public sector? What contractual protections against IR35 liability have you introduced?
- If you believe you are supplying outside IR35 (e.g. on a contracted out basis) have you made sure that your supply arrangements really allow you to ignore the new IR35 regime?
- If you are relying on use of the online tool when paying outside IR35 have you stress-tested it to make sure it is not coming up with answers for your contractors which are plainly wrong (and likely to be ignored in due course by HMRC), and have you made appropriate changes to client and contractor T&Cs?
- Do you know how to challenge public sector decisions about IR35 status?
- If you are migrating contractors to a third party, such as an umbrella, what steps are you taking to minimise risks under MSC, the Intermediaries Legislation of 2014, and the ERA?
- If you are using a payment agent to deal with IR35 compliance have you entered into contracts which definitely ensure they will be the liable entity under IR35?
- Where you are paying contractors who are inside IR35 have you made appropriate amendments to PSC contracts to allow payment at the new lower rate to allow for you to account for employers NICs and Apprenticeship Levy?
- Where contractors may in due course be deemed to be outside IR35 how will you pay them before it becomes clear what their status is?
- Have you checked change of law clauses and/or made appropriate amendments to contracts to clients to allow higher margins/rates where necessary?
- Are you ready to pay all PSCs for work up to 6 April before 6 April?
Key danger areas
Having already assisted many staffing companies on the upcoming changes, these are some of the common danger areas we are regularly encountering:
- Be careful about migrating all your contractors to umbrellas who say they will take over all risk. Some of the arrangements being offered at the moment may create more risk than they solve.
- Don’t assume you are contractually entitled just to reduce contractor charge rates to accommodate employer’s NICs and Apprenticeship Levy. A new contract will probably be necessary.
- Don’t assume you can rely on the client say so as to status and/or the online tool. Neither has statutory effect. You need more reassurance if you are to pay gross.
It is important to remember that these new IR35 measures will create liabilities very quickly if processes are wrong. However, there are some good options for companies prepared to act quickly.