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The Simple Guide to the Changes in IR35 and What This Means for Recruiters

The Simple Guide to the Changes in IR35 and What This Means for Recruiters

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Last edited May 2, 2023

The Simple Guide to the Changes in IR35 and What This Means for Recruiters

IR35 – what a hotly anticipated topic this was when we announced our joint Breakfast Huddle with ePayMe and Thomas International. And rightly so, with the changes coming into effect from April 6th 2017.  Recruiters in the public sector & contracting space are starting to see the penny drop and take notice.

So, let’s take a simplified look at this often deemed complicated minefield of a subject…

What is IR35?

IR35 is in essence a tax legislation. In the past, many employees reaped the benefits of a loophole in which anyone could set-up a limited company, adopt the title of Director and increase their monthly income by paying a lot less tax. This person could still remain in their current employment and enjoy all their employee benefits.

Individuals exploiting this loophole were classified as ‘disguised employees’ – many of these employees were providing professional services on a contractor basis, while receiving the perks of employment for the same organisation (holiday, bonuses healthcare, etc).

Following the introduction of IR35 by the HMRC, these individuals were no longer classed as ‘self-employed’ in terms of taxation, and now would be taxed in a similar manner to that of a general employee.

Individuals that were branded as ‘disguised employees’ and thus in the legislation of IR35 can be in a tricky and unfortunate position. The Employee would be denied any perks from their employer if brought in as a ‘contractor’. This kind of situation can cause tremendous financial toll on the person.

Yet this legislation hasn’t achieved the results for the government it was meant to: Because from over 26,000 personal service companies (PSC’s), only 10% of PSC’s who should be operating IR35 actually are. The Projected cost to the Exchequer in 2016/17 is £440m!

Why this matters to Recruiters?

You might be asking ‘This was released in 2000, you’re 17 years too late for this’. Well, since the Autumn Statement in 2016 (AS16) some important factors in IR35 have made a significant change to try and curb those interesting statistics I just listed.

Most notably is that the responsibility for operating IR35 in the public sector will be the responsibility of the recruitment agent, and not that of the contractor.

This means you as a Recruiter must determine the contractor you are placing is either inside IR35 or not. And it will be your responsibility to inform the next intermediary.

Now as a Recruiter you do not make the final decision on IR35, but – if you’re not informing the employer that the contractor you are placing is subject to IR35, you’ll be exposed to a potential risk. And no one wants to receive a reprimand from the HMRC.

There’s a tool – But it’s a difficult one.

The HMRC has come to the rescue with a ‘comprehensive’ tool. Their tool is a questionnaire comprising of 50 questions that will be used to help determine whether your contractor is subject to the IR35 specifications, or isn’t.

That understandably is causing a little bit of unrest. As you can imagine IR35 is a very grey subject matter depending on each case, and will certainly cause confusion and friction from all parties. Regardless, the HMRC claim that they will stand by their decision from the IR35 tool, and have also offered the ability for individuals to contest the tools verdict.

Irrespective, 50 questions are quite a-lot, and will undoubtedly add to the workload of the consultant trying to place the contractor.

Furthermore, this kind of stress on all parties, requiring a dramatic increase in documentation and communication, along with potential changes in employee contracts adopted from a natural ‘over-compliance’, is already seeing companies threaten to drop the hiring of contractors operating in the public sector. Which surely means Recruiters are going to see a simultaneous rise in work load and a reduction in available candidates.

The tool is due to be released at the end of February 2017

What’s worse you haven’t got much time to prepare.

As usual the HMRC has introduced a heavy handed and strict deadline for the IR35 changes, April 6th 2017. Yet many experts on this matter are claiming that if you haven’t got your affairs in order by the end of February, you’ll be playing a desperate game of catch-up to avoid being out of control.

So how can a Recruitment Company prepare for these dramatic changes?

Derren Powell, Business Manager ePayMe who led a recent breakfast huddle on this topic said:

“Agencies need to engage a reputable and credible provider to ensure they have robust solutions in place, ensuring they are on the front foot in readiness for the legislative changes being implemented.  Clearly, given the changes to IR35 along with other changes announced in the Autumn Statement, an agency has to have the confidence that all changes are controlled and accounted for, thus minimising the risk to them. “ 

ePayMe, are specialists in this kind of sector and are keen to get the message out to help recruiters understand the gravity of what is happening.

They’ve produced an excellent short survey that we recommend you take, to see if you truly know enough about IR35. This should be your first step in making the appropriate preparations.

Click here to take their Survey.

What options does the contractor now have, following IR35.

In summary, operate PAYE – whether on the agencies books or engaging a payroll provider, like ePayMe, and utilise an Umbrella solution.

Whilst other options remain available, these options come with their advantages and disadvantages and will work well with each contractor depending on specific circumstances.

“This doesn’t affect me I’m in the Private sector…”

Think again, with that predicted cost to the Exchequer being so large, it will be only a matter of time before the changes being implemented to the Public Sector impact the Private Sector.

So this is certainly a call-to-action for Recruiters who are placing Contractors in the Private Sector. Get in the know and establish an effective plan of action for when this truly affects you. If you’ve made the appropriate preparations for this you’ll be ahead of the market, and that will put you in the driving seat

If you feel that you need to know more about this, join us and our team of experts to discuss and explore IR35 (along with other legislative changes coming into effect in April) in more detail. Whatever sector you’re in, our March Breakfast Huddle that discusses this topic in more depth will be hugely beneficial to you.

This is the second breakfast huddle on this subject, in association with our partners ePayMe and Thomas International.

What’s more, we’ll be diving into the Autumn Statement ’16 in general, and how it’ll impact your business and candidates, and what you can do.

In addition, Thomas International will be sharing some big data on what “good” looks like within the recruitment industry, and how business can use people assessments to add value to their clients.

Don’t hang around, spaces are filling up fast – Book now!

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