How to prepare for IR35: Key questions answered
February 24, 2020
Many businesses are struggling to get ready in time for IR35. Among attendees at our recent IR35 seminar just under two thirds (65%) said they are confident of being ready come April, while nearly a quarter (24%) weren’t so confident about their readiness.
With that April deadline looming, it’s clear there is still much to do. Attendees at our seminar put a number of questions to our specialists and a representative from HMRC, such as:
- Can we rely on CEST (Check Employment Status for Tax)? What should companies do when they get back “undetermined” findings from the HMRC tool, and how can they demonstrate they have used CEST in the right way?
- How do we understand what our obligations are when there are several entities in the supply chain? Agencies, umbrella companies and outsourced providers were popular topics at our seminar. There is clearly still confusion regarding the roles each play, the obligations of the end user and concern they won’t receive full information from everyone in the supply chain.
- How do we payroll my contractors? Important operational questions such as what PAYE code to use and problems with outsourced payroll providers processing payroll for contractors are fundamental to getting your IR35 preparations right.
- What will happen if we are not ready? What will HMRC’s approach be? Will HMRC look back at prior years’ treatment of contractors?
On this last question, HMRC has publicly stated it will only look back at prior years if it believes fraudulent or criminal behaviour may have taken place. HMRC has also expressed an intention to help organisations get ready for these changes while stopping short of stating no penalties will apply for non-compliance in the first years (as happened with the introduction of Real Time Information).
Regarding the other questions raised, the following steps should help you get a better handle on your obligations and the information you’re working with:
- Identify your contractor population and establish which are business critical contractors.
- Determine if you’re happy to continue using personal service companies (PSCs). whether you should move to another model and whether this would apply without exception.
- Agree how to undertake the assessments, whether using CEST or another tool.
- Send status determination statements to all contractors engaged via a PSC.
- Formulate a policy and process for appeals and disputes and establish how it will be resourced. With 45 days to respond to an appeal, it will be essential this process does not break down.
Importantly, this is not just about preparing for the new regulation. IR35 is a catalyst to look at the broader workforce strategy, tackling the legal, pay and cultural dimensions of a changing, more complex workforce.
We’ll be sharing a number of articles in the next few weeks covering some of these areas in more detail. For more information on how we’re helping clients address their questions, get in touch using the details below.