What is IR35 and the risk and responsibility for companies?

This 5 minute summary gives a brief overview of what IR35 is, how it might affect employers and how we can help you navigate your way through.

What is IR35?

IR35 isn’t new. It was introduced by the UK government in 2000 to address concerns that workers who were providing their services through intermediaries (such as limited companies) were, in some instances, ‘disguised employees’ and were therefore avoiding paying employee income tax and national insurance contributions. With the introduction of IR35 these individuals are now classed in one of two ways. Where they are ‘inside’ IR35, PAYE deductions must be made from the entire contract income as if they are an employee. Where they are ‘outside' IR35 their work is classed as a genuine service, in business on its own account, and not subject to the same tax treatment as employees.

Why are people talking about it now?

Up until 2017 the legal responsibility for defining whether an engagement is inside or outside IR35 was with the worker themselves. In April 2017 that responsibility switched to the client. This was limited to the public sector, but it is probable that this will extend to the majority of the private sector from April 2020.

What is the risk and responsibility for companies?

In a nutshell, companies will need to assess their workforce and determine whether each role is inside or outside IR35. The legislation states that all companies must take ‘reasonable care’ when assessing, simply classifying every role the same way will not work. You can visit the government’s IR35 and see its assessment tool (CEST). If a non-compliant procedure is followed the financial penalties can be significant. Just as importantly, your non-pay rolled workforce may also be concerned by this change, and ensuring you engage with this important group will be key to ensuring you retain your supply of talent. The good news is there is still time, and support available to help. And, in our view, this change is not as ‘cataclysmic’ as some might suggest.

What can you do right now?

Right now, the government is still finalising the detail of the legislation, but it is critical to begin to plan now.

This is what we’d recommend:

1. Conduct an Audit and understand who your contingent workers are, how are they engaged, what the contracts look like, how they are paid and what the associated risks are

2. Engage stakeholder, engage with your contractors, managers and agencies to tell them what you are doing and how you can work together.

3. Assign responsibility build with a steering team with responsibility and accountability to oversee the change programme and gain sponsorship.