Expected changes in IR35 rules are now less than one month away but research reveals that there is still a widespread lack of IR35 readiness across most industries in the UK.
From 6 April 2021, the reformed IR35 rules will shift the responsibility for determining the tax status of a contractor from the worker themselves to the ‘end-user’ (i.e the organisation who is ultimately receiving the individuals service). This will place a lot of pressure on companies to make these difficult determinations and is going to be harder for large organisation that use a lot of agency workers and consultants.
“Agencies will be forced to change their procedures and, in some cases, their contracts. They need to take this into consideration now before the IR35 rules come into place and speak with contractors and their clients to ensure they are happy with these arrangements.”
Julian Cox, Head of Employment at iLaw
Under the legislation, medium and large sized private sector end-clients who receive services from a contractor using a PSC will be responsible for:
- Determining whether the contractor is inside or outside IR35 and creating a status determination statement (‘SDS’)
- Passing the SDS onto the contractor and any agency in the contractual chain that they contract with.
Agencies will need to ensure that they don’t pay PSCs gross if the contractor is ‘caught by IR35’.
The changes also mean that agencies could become liable for paying tax and NICs if they:
- Are the fee-payer, or
- Are not the fee-payer but do not pass the SDS onto the next agency in the contractual supply chain, or
- Are the first agency in the contractual supply chain and HMRC invokes the transfer of liability provisions.
Hopefully, this short summary has provided some insight into how IR35 will impact and create changes for your agency. If you would like to know more about devising a strategy to ensure the best possible position before April 2021 get in touch with 1PS today.
We have created an agency guide that covers topics such as status determinations, SDS, and the disagreement process in more detail. Our team would be happy to help support you in any way we can over the next month.