Originally planned for 2020, changes to IR35 regulations are due to come in to effect in April 2021 which will affect the way employers engage contractors. With the responsibility to adherence shifting from contractor to (medium to large-sized) businesses, some employers may feel reticent about engaging with such workers, especially if there is uncertainty with regards to how IR35 works and the resultant lack of confidence as to how to comply.
Interim executives remain an important resource and their project, change and results-driven experience may be a key factor in steering a business through to success and profitability.
Edward Mann’s guide to IR35 2021:
What is IR35?
IR35 refers to tax legislation introduced in 2000. It was designed to ensure contractors and interims working for organisations paid the right tax – if they were working for an employer in the same way as a permanent employee, their tax status should be the same i.e., paying income tax and NI. Many contractors, despite working in the same way as an employee, worked via an intermediary business (e.g., their own limited company – what’s termed a Personal Services Company) to make tax savings. IR35 therefore sought to clamp down on this, so only contractors genuinely operating as a separate business offering a service could operate in that way.
Since its inception the onus has been on the contractor to ensure compliance, however, this proposed change will mean private sector businesses of a medium to large size will now have ultimate responsibility to comply (public sector organisations have adhered to IR35 since 2017).
How to determine if a contractor is working within IR35:
Essentially it comes down to assessing: ‘is the contractor working for me in the same way as a permanent employee, or are they offering a service through a legitimate business?’ If effectively working as an employee, they are working within IR35, the latter is considered working outside IR35.
HMRC has developed its own checklist to determine whether a contractor sits inside or outside IR35 – Check Employment Status for Tax (CEST), which can be a useful tool for employers as well as contractors. Some find It lacking in areas so while a good place to start it’s worth undertaking your own checks too.
It will be helpful to consider:
Mutuality of obligation
Are you obliged to offer the contractor work and are they obliged to undertake it? If so, it’s likely to be considered employment status.
Supervision, direction and control
Is the contractor or interim actively managed by someone within your organisation or are they able to work autonomously? If the former applies it is likely this will be considered as employment status. Managed by the business includes directing and supervising the way they work, for example setting their daily hours.
A contractor should be able to reassign the work to someone else if working outside IR35. The contract relates to the type of work that needs to be done, rather than who is doing it.
How to avoid IR35
Avoiding IR35 simply means adhering to the regulations – by ensuring your contractors are correctly determined as working within or outside IR35 will mean you remain compliant and avoid incurring HMRC fines.
Why are finance leaders using Finance and Accounting interims for 2021?
Contractors and interims remain an attractive prospect at this time as uncertainties over the economic
climate and the need for specialist skill sets means they provide business solutions in the following ways:
Cost-effective means of supporting business
Rather than investing heavily in the recruitment, onboarding and ongoing costs of a permanent employee, a contractor can be immediately deployed and with far less financial outlay.
Diversifying available skills
Interims are often used for specific projects and/or specific skills, utilising several interims within the business means accruing a wide variety of skills without increasing permanent headcount.
Provide support for a backlog of deadlines
Contractors and interims are a great resource for finite work including backlog and projects, providing additional manpower that won’t be needed on a long-term or indefinite basis.
At Edward Mann our extensive database and networks means we can source high-calibre temporary, contract or permanent candidates to suit the specific needs of your business, making sure you have the talent you need to grow. Our expertise means accessing the best temporary and interim staff for your business needs, assessing their experience and skills effectively and quickly, helping you streamline your recruiting process.