The IR35 legislation remains largely unchanged since its introduction back in 2000. The establishment of the IR35 Forum in 2011 and introduction of Business Entity Tests in 2012 (which were quickly abolished) are perhaps the two most noteworthy changes – until the enforcement of IR35 in the public sector in 2017.
Changes to IR35 in April 2021
However, big changes are on their way. The Government has announced that changes to the off-payroll working rules (IR35) will be rolled out to the private sector on 6th April, and this means that medium and large businesses will now be tasked with determining the IR35 status of any contractors who work for them. It also means IR35 risk will be moved from the contractor to the customer – in a similar way to how it has been in the public sector since 2017.
So, from April, IR35 will no longer be something that only contractors have to worry about – the agencies that place contractors and firms that engage them will also face the risk. April will be on us before we know it, so it is vital that businesses who employ contractors start to think about what they can do to better support IR35 compliance.
Ensuring IR35 compliance
Hopefully, both agencies and end clients who are already employing contractors, are already taking steps to help them demonstrate that they are not disguised employees and are genuinely self-employed. Contracts between agencies and contractors should already be IR35 friendly and contain clauses around control, mutuality of obligation (MOO) and substitution.
However, this may not be enough. If HMRC decides to undertake an IR35 review of a contractor and their end client, they will use any existing contract as a starting point – but will also pull together a “hypothetical contract” to enable them to assess whether they believe the relationship is one of employment or not. As part of this process, they will consider the day-to-day working practices of the individual as well.
With this in mind, there are some things that customers can do to help ensure that the contractors working with them are using IR35 compliant working practices:
Customers should NOT expect contractors to:
- Work fixed hours each day or week
- Receive employment-related benefits, such as subsidised canteens and cycle to work schemes
- Be included in any on-the-job training or have a personal development plan
- Undertake performance reviews
- Be involved in any performance-related bonus or pay increases
- Receive staff newsletters, be included in staff social clubs or team-building exercises
- Give the customer formal notice of any dental or doctor appointments
- Follow the employee sickness absence procedure
- Participate in Return to Work interviews
However, you can ask your contractors to:
- Work with minimal supervision from your company
- Be project-specific in relation to their involvement with your company
- Work at arm’s length to your company so they do not become integrated into the business
- Negotiate a fixed price for the work they undertake on your project
- Only be paid when working on your project
- Have professional indemnity insurance to cover their work
- Rectify any unacceptable work at their own cost
- Organise and pay for their own training and development courses
- Take unpaid leave
IR35 reforms for the private sector are just months away, and so it is time for contractors, agencies and end clients to start thinking carefully and acting sensibly. Many businesses rely on IT contractors, so it is important to remember IR35 reform can be managed, and there are lots of companies out there who can help to support you both.
For an initial consultation on how Agile Recruit can assist you or your business in the area, please contact our Managing Director Jonathon Webley at firstname.lastname@example.org