April 6^th heralded in a new tax year along with the much debated and contentious Off-Payroll legislation.  The new tax rules are set to impact some 60,000 businesses, 20,000 agencies and 500,000 contractors. Hiring firms have had years to get ready and even an additional year on after Ministers agreed to a delay at the last minute.  Unfortunately, and not surprisingly given the pandemic, many left it until the last minute, whilst others are still yet to get ready.   For those hiring firms that are all at sea and struggling to navigate the choppy waters of the sequel to IR35, Dave Chaplin, CEO of compliance solution  IR35 Shield  has some advice to steer them through.

Do you know your limited company contractors?
Like April 6^th which has come and gone, firms might find that a number of individuals who make up their contracting workforce have also left.  Some projects may have come to a grinding halt, just like when the legislation took effect in the public sector in 2017. Therefore, firms should establish the status of their projects and contingent workers so that their businesses can regear for the new normal.

With new contracts due to be agreed under the new rules it is important to quickly identify

those contractors who require assessing so that firms can continue to hire the best talent they need. Firms running blanket bans or not treating contractors fairly will find themselves as the back of the queue, or maybe considerably more to attract talent.

Adopting a quality Off-Payroll compliance solution or provider is crucial.  This will help identify engagements that pose an IR35 risk and can inform the practicalities of redesigning engagement strategies and working conditions to further mitigate risk across the workforce.

Using the adopted compliance solution, hirers should carry out an initial assessment of their contractors based on the information at hand – the contract and the working conditions. The result will be key in informing the next steps, and answering questions such as:

• What status factors are imposing risk upon the company?
• Which projects are at most risk from the Off-Payroll rules?

Take all scenarios into account
Having sought answers to the important questions and identified IR35 risk factors, hirers will be ready to establish a plan and might find that certain policy changes to contractor working practices are enough to mitigate IR35 risk effectively and enable some contractors to operate ‘outside IR35’.

However, any changes made must be realistic, rigorously applied in practice and reflected in newly drafted contracts. Any contractual amendments that are simply window dressing and not part of the true agreement between the parties may not provide a robust defence should things proceed to a tax tribunal.

Ongoing communication and continued compliance
Having conducted a comprehensive IR35 status assessment, which needs to factor in the contractor’s limited company business, outcomes will need to be communicated. This is crucial to plan how to deal with those deemed within the scope of IR35.

Any rate renegotiations for affected contractors should be conducted at this stage.  Many recommend that the safest route is to engage ‘inside IR35’ contractors via agency payroll.

But remember, Off-Payroll compliance is an ongoing process. Each contract renewal warrants a new status assessment, and ongoing monitoring of the workforce is required to ensure that working practices always reflect the written agreements.

Insuring against tax risk
It is important to know that firms cannot insure against the non-payment of tax, in the same way that one cannot insure against a speeding fine.  Those firms that are concerned about the possibility of being struck by the equivalent of tax lightning should at least cover themselves with tax investigation insurance to help cover the costs of defending a position against HMRC.  However, any insurance product must be underpinned by a robust compliance process.

Different groups of contractors will carry different levels of risk and exposure.  This is like insuring a fleet of Ferraris versus a fleet of Minis and any insurance should be priced around the measured reality for each situation.  A one size fits all approach doesn’t make commercial sense.

The holy grail of Off-Payroll compliance
In this “new normal” of Off-Payroll working, adopting a compliance-led approach and continuously monitoring and assessing the contingent workforce is the only way to ensure firms are best place to pick from the front of the talent queue and access the best contracting talent they need. Hirers and contractors must work together to ensure their working relationship remains “outside-IR35” and carry out this five-point plan:

1. Assess IR35 status comprehensively
2. Ensure the contractual terms align with the relationship
3. Agree and sign a Status Determination Statement (SDS)
4. Make sure the engagement operates in alignment with the original intent
5. Monitor and collate supporting evidence throughout the contract

In time, the dust will settle. Once some firms begin to test the water by engaging limited company contractors, others will undoubtedly follow, as they recognise that contractors provide vital skills on an ‘as needs’ basis that they cannot do without along with the practical and commercial benefits they bring.