We have run well-attended seminars this year on the likely form of the new IR35 regime for the private sector, and this previous briefing sets out some key issues.
In the meantime, assuming the reports are correct, what do you need to do now if you are a user or supplier of PSC contractors to the private sector? These are our tips, based on advice to over 50 staffing companies in the 18 months since the public sector IR35 reforms of 2017:
Step 1: Consider supply models outside IR35
- Take advice now about what legitimate models will be deemed outside IR35 – we have helped many staffing companies frame their supplies in ways which are not affected by the likely IR35 changes.
- Consider which of those "outside IR35" models may be suitable for your types of PSC contractors, your business and your clients.
- Analyse your population of PSCs to identify which ones already fit these models or could move into these models and which ones won't.
- Take advice about aggressive tax avoidance (and tax evasion) schemes which may be marketed by certain tax advisory or umbrella companies to your PSC contractors ("aggressive schemes").
Step 2: Warm clients up
- Be ready for discussions with key clients about moving to new supply arrangements where they are not already using them. To the extent clients are not happy to change models (and many will not be, and for others the new models just will not be appropriate).
- Analyse your remaining population of PSCs contractors (i.e. those likely to be assessed within IR35) to identify which ones may have relatively transferable and hard to find skills ("As") , and ones which do not ("Bs").
- Have conversations with key clients about As, warming them up to the fact that, if they do not gross up pay rates, the As are likely to leave.
- Have conversations with key clients about Bs, warming them up to the fact that they may not leave but they may be disgruntled if pay rates are not raised.
- Alert clients to the aggressive schemes which your competitors may offer, HMRC Spotlights and the Criminal Finances Act (CFA) and other risks that the clients may be exposed to if they use them.
Step 3: Implementation
- Once you are settled on your strategy for different groups of PSC contractors and key clients, make sure your recruitment consultants/account managers have training and scripts for handling difficult calls with PSC contractors and clients – they will be in the firing line and the public sector experience in 2017 suggests many will find the process very stressful. Indeed you would be wise to have these scripts in place for 29 October - many contractors and clients will start asking for your future plans very soon.
- Be ready with new contracts, policies, marketing materials, insurance coverage and invoice discounting arrangements required for any new supply models.
- Be ready with new contracts to reduce likelihood of claims from disgruntled As and Bs – some may be tempted to claim employment rights and/or other rights relating to alleged "wrongful" assessments of inside IR35.
- Set up payroll arrangements for PSC contractors inside IR35, or arrange for a reliable umbrella or someone else to do the relevant calculations.
- Be ready with checking processes and spot-checks which can root out aggressive schemes – make sure these go beyond self-certification or a one off audit, or a requirement that providers have membership of x or y trade association. HMRC is clear that more than this is required. And be very careful about umbrella referral arrangements, all of which should be carefully reviewed.
- Do not issue contracts now which straddle 6 April – give yourselves the option to naturally finish all current projects in good time for 6 April 2019. This may help reduce risk of retrospective claims of various types (by HMRC and/or contractors), and may help ensure that HMRC will accept that any post 6 April 2019 engagement of the same PSC contractor on an outside IR35 model is more credible and natural.
Step 4: Lobby for delay?
- You may feel the measures are in whole or in part ill-thought through, damaging to the economy, unfair, or based on incorrect assumptions. In that case of course you should make your views felt in any next consultation stage, as we have already done in previous consultation.
- But it does seem more than likely that IR35 reforms are coming in some shape or other and so you will be wise to take steps 1-3 in any event.
We have advised and are advising many staffing companies on the options they will have and changes they will need to make, and have a fixed price workshop methodology to help companies work out what they will need to do and which options will work best for them and how to root out aggressive schemes which your contractors may otherwise be lured into. Please let us know as soon as possible if you would like such a workshop.