Sponsored: The Essential IR35 Checklist – is your recruitment finance and payroll team ready?

Are your finance and payroll teams ready for IR35 compliance?

Following the Government’s decision to postpone IR35 rule changes last year, time is running out for recruitment businesses that haven’t fully prepared for the changes ahead of the new deadline on 6 April 2021.

As soon as the new legislation comes into effect, medium and large-sized organisations in the private sector will be responsible for assessing the employment status of their contractors. This marks a significant change from the current rules and places extra responsibility in the hands of finance and payroll professionals to ensure their organisation stays compliant at all times.

The challenge with IR35 lies in its complexity and changing deadlines, so it’s hardly surprising to find just how few organisations are prepared for the reform. A research study led by management consultancy Sullivan & Stanley revealed that 71% of private sector firms were not aware of the significance of the forthcoming update. More than half (52%) also said the rule changes were ‘contradictory or confusing.’

Here at Access, we work closely with recruitment businesses to ensure compliance with IR35 through our Access Pay and Bill software and our managed payroll service. Clients often ask us to help simplify the implications of the new changes, which is why we’ve created this short guide to explain everything their finance and payroll teams need to know prior to the update. However, if you’re already fully up to speed with the changes ahead, you can get in touch with our team to discover how Access Pay and Bill solution can support you.

What is IR35 – and how is it changing?

IR35 is a tax law designed to prevent tax avoidance by contractors working for their clients via an intermediary, such as a limited company or personal service company. The idea behind the new rules is that it will prevent contractors from disguising their real status as an employee and therefore not paying necessary income tax and National Insurance contributions (NICs).

From 6 April 2021, medium and large-sized businesses in the private sector will be responsible for calculating and deducting income tax and NICs for any contractors that fall within IR35 rules via the PAYE system. Similar rules have applied in the public sector since 2017.

It’s important to note that the new update only applies to medium and large-sized businesses as defined by the following criteria in the Companies Act (2006):

  • Annual turnover is more than £10.2 million
  • Balance sheet total is more than £5.1 million
  • More than 50 employees

If your business meets two or more of these conditions, then you will need to ensure full compliance with the upcoming changes to IR35 and prepare to determine the employment status of any contractors you work with.

Your essential IR35 checklist

This quick checklist is a good starting point to ensure you are covering all angles ahead of April 2021:

  • Carry out a full audit of your contractors – The first step for any finance department is to conduct a comprehensive review of the contractors their organisation currently works with. This can be quite a challenge in itself, particularly if the business does not keep an accurate record of all contractor information in a centralised system.
  • Determine which contractors will fall inside IR35 – Employers must assess the IR35 status of every contractor on a case-by-case basis. HMRC have issued three fundamental criteria when determining which workers fall inside IR35 – ‘personal service and substitution’, ‘supervision and control’ and ‘mutuality of obligation’ – though there are also many supporting factors that must be considered. Detailed guidance on this can be found via the Government’s CEST tool.
  • Calculate accurate tax and NI payments – Once finance and payroll departments have a clear idea of which contractors fall within IR35 rules, they can then start calculating the potential cost of tax and NI contributions they would be due to pay as an employee. Having full visibility of these costs ahead of time is a huge benefit and helps determine the best course of action for all parties going forward.
  • Prepare your new policies and agreements – From April 2021, employers will need to provide a Status Determination Statement (SDS) to every contractor they intend to keep working with. Employment contracts and working agreements should also be updated to clearly communicate all IR35 criteria and implications when engaging the services of a new contractor.
  • Avoid the costs of non-compliance – Whether intentional or not, employers that fail to comply with the new requirements from HMRC will very likely find themselves facing penalties for unpaid tax and NICs, as well as significant reputational damage.

Need help with your IR35 compliance?

Get in touch with one of our friendly IR35 specialists to discuss your options ahead of April 2021 or book a software demo to see exactly how Access Pay and Bill software can support your organisation.

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