How do I prepare for the updates to IR35 in the private sector?
The countdown is on to April 6th, when the changes to off payroll working will come into effect. The planned changes will completely transform ways of working for private sector businesses that engage contractors or consultancies. Sentinel have mapped ten simple steps to get your organisation ready for IR35.
Whether you’re yet to set your IR35 strategy or you’re already dolling out determinations, remember there is more to preparing for these new regulations and you’ll want to have given all aspects some thought before April 6th…
- Work out the size of the challenge. Audit your contractor population to find out how many personal service company (PSC) contractors you will have running past April 6th, 2020. Remember that PSC contractors supplied under staff augmentation engagements with consulting suppliers could also be in scope.
- Carefully consider your approach to PSC contractors. Some organisations have embraced the new paradigm and have started making IR35 status determinations for individual contractors, others are prohibiting the use of PSCs. Before banning PSCs outright, consider the cost impact of rate increase demands now and in the future. Have a plan in place to identify key contractors and respond to rate increase demands. If you plan to ban PSCs, you don’t need to read any further. You may want to think about your hiring strategy and how you’ll attract the necessary niche skill sets to newly defined permanent or umbrella company roles. Book a consultation and let us help you navigate this change.
- Go it alone or get some help? So, you’ve decided to make status determinations. Now you need to decide whether you will do this in-house, or whether you would like external help. You can find support from consulting and technology solution providers, and insurers. Either way training is essential.
Sentinel are offering free IR35 training sessions to help you deepen your understanding so you can make status determinations with confidence. Book a meeting today.
- Pick a tool. The key in handling the changes to off payroll working is to show reasonable care in making status determinations for contractors who will be engaged past April. One way to do this is to use HMRC’s CEST Tool or a third-party tool to help you evaluate whether a role falls inside or outside of IR35. Consider using an assessment tool provider who offers insurance to cover the tax liability where HMRC successfully challenges your status determination.
- Communicate your status determinations to contractors and suppliers. Stay close to them, especially key contractors whose status will change.
From the earlier planning stage, you will have prepared contingency plans for loss of talent through change in status. Expect to lose some of your existing contractor work force or to increase rates, managing these changes will be crucial to continuity for your teams.
- Define a process for disagreements. Contractors have the right to challenge your status determinations, and you need to respond within 45-days, or you’ll retain the tax liability. Again, this is where reasonable care plays a part, as you’ll be able to show how and why you made the determinations you did. Expect there to be some challenges to status determinations, whether they have merit or not, having a process for managing them defined ahead of April 6th is key.
- Review your contracts. Have a different version for inside-IR35 and outside-IR35 contractors. The clauses will need to reflect the working practices that led you to the status determination for the role.
- Review your suppliers for financial stability. As the changes transfer responsibility for status determinations to clients, so too your suppliers take on a more significant role. You’ll need to work with partners that are financially stable, trusted and are sufficiently aware of their new role. Where your supply chain fails to satisfy any tax liability or fails to properly inform other members of the chain about your determination, the liability or debt can be transferred to you.
- Education is essential. IR35 status questions are difficult to answer without contextual understanding. You could also create risk for your business if you fail to ‘manage’ contractors in line with your status determinations or stick to the working practices outlined.
- Sentinel can help. We have a team of IR35 SMEs, and we have assessed all the major providers of consulting services, status determination tools, and insurance. We are taking our part in the supply chain seriously and are eager to support clients in taking charge of this new responsibility.
Visit our IR35 hub here for answers to common questions, to download our IR35 guide or to book a consultation with us.