This post follows an earlier report which outlined what IR35 is and how it will impact the world of work. Following recent developments, this post will go into more detail about the implication of IR35, the financial and legal ramifications of not being compliant, and what contractors and clients can do to deal with it.
IR35 has in the past proven difficult for authorities to enforce, meaning that many Limited Company contractors haven’t been paying enough tax. Non-compliance is estimated to have cost the government around £440 million in lost taxes.
IR35 has been amended to resolve this issue and bring in more tax. It’s estimated than in the first year, the new IR35 legislation will bring in £1.2 billion. This amount will likely drop over the following years as companies and contractors understand their positions better – but will IR35 will still bring in large amounts of revenue?
New changes to IR35 marks one of the biggest legislative shifts in employment law over the last decade, which will impact both clients and the contractors who work for them.
The private sector reform is due in April 2020. Whilst previously responsibility sat with the contractors, now it sits with employers, or the recruitment agency that supplied the workers.
Almost half of senior personnel didn’t know what IR35 meant for their business, and many contractors are still in the dark about how it could impact them.
What Does This Mean For Contractors?
Increased Cost
If a contractor is operating as a limited company, this change will impact their overall costs as they’ll pay more in tax.
Increased Scrutiny
If a contractor moves outside of IR35, they will face increased scrutiny about their previous roles and assignments, and may even be open to investigation into all the companies they have worked for over the previous six years.
What Does This Mean For Clients?
Increased Cost
IR35 will also mean an increased cost for the client as well, potentially up to 25%, as they will have to employ people to conduct checks into contractors. Many businesses will opt to outsource this to a recruitment company, who can take care of all the background checks, and ensure complete legal compliance.
Delays And Disruptions To Projects
Ensuring all contractors are compliant with the law will of course take more time, meaning ongoing projects suffer additional delays.
Increased Risk
Ultimately, it is of critical importance for all clients that their workforce be compliant. Companies found to be in breach will suffer damage to their reputation, as well as potentially facing fines or imprisonment.
How Businesses Can Deal With IR35
Clients and agencies should make a status profile for workers on all current and planned assignments. This will allow for prioritisation of certain elements that need dealing with first, and can help organise the subsequent paperwork.
A recruitment agency with plenty of experience across complex contractor payment and working arrangements will be ideally positioned to support throughout and following major legislative changes. Partnering with a contractor staffing company will reduce the administrative burden of HR and management teams, increase efficiencies and ensure compliance across the board.
VHR Workforce Solutions has 16 years’ experience supplying thousands of workers every year across 45 countries, meaning we are well placed to help businesses and contractors navigate IR35.
Find out how VHR Workforce Solutions can support your staffing services following IR35 changes.
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