What Is IR35? Will It Impact Recruitment?

Back in 2018, several major changes to the Intermediaries Legislation or IR35 were announced. Despite being set up nearly 20 years ago, this notorious piece of legislation will now have an extended impact upon the private sector. Meaning that it is of the upmost importance for any businesses potentially affected by these new rules to be fully aware of their new responsibilities.

What is it?

Originally put in place during April 2000, IR35 refers to a piece of legislation that is designed to target something known as ‘disguised employees’ – a term utilized by HMRC (Her Majesty’s Revenue and Customs) to refer to workers who use an intermediary to provide their services to clients. By avoiding HMRC’s definition of self-employment, such individuals are registered as limited companies rather than going onto the payroll. Meaning that they can avoid paying the correct tax or national insurance contributions, as well as neglecting several employment incentives such as pensions or annual leave.

What are the proposed changes to IR35?

It was recently announced that, as of April 2020, the IR35 would be extended to include many medium and large sized businesses in the private sector. As part of this new rollout, companies will now take on the renewed responsibility of allocating their contractors with the appropriate tax status. At any stage, however, HMRC can intervene and evaluate this assignment, deeming it to be either inside or outside IR35.

Inside = A company that has ‘disguised employees’ and is therefore in breach of IR35.

Outside = A company that complies with IR35 and will therefore not be liable to fines.

What impact will these changes to IR35 have upon businesses?

This rollout to the private sector will inevitably have a significant financial impact upon recruitment companies, as they forced to adapt their business model to fit within the requirements of IR35. Many firms will likely have to implement a handful of new, costly procedures and operations in order to fully accommodate the proposed alterations to the legislation. More specifically, we are likely to see a move towards permanent roles as opposed to contracted work. A direct result of the additional costs recruitment companies will potentially experience when undertaking or renewing a contract with both new and existing clients.

How can recruitment agencies prepare for IR35?

Luckily, there are several important steps that any recruitment business can take to ensure that they are fully prepared for the changes in legislation. However, it should be noted that, many of the following precautionary measures should be put into place well in advance of the reforms to IR35. This way you can guarantee that your business is adequately prepared for 6 April 2020.

  • Re-evaluate your existing client agreements, carefully considering any workers who are currently operating on ‘off-payroll’ arrangements – Identifying the cases that will not comply with the new rules.
  • Implement the necessary processes to determine the tax status of any future clients brought on after the legislation has been put in place.
  • Arrange a communications procedure to explain the new rules to any workers who will be affected by the changes – Ensure that they fully understand what it means to be inside and outside IR35.
  • Account for the potential financial impact that both IR35 and these new processes will have upon the business – Highlight any areas that will require alterations.

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