The hot topic in the recruitment world lately has been the forthcoming changes to IR35 in 2020. Private sector organisations are trying to ensure they’re ready for the new legislation, but what exactly can they do to prepare? M Cubed spoke to Lucien Dissake, our Head of Compliance, about exactly what’s happening, and what businesses need to do about it.
So Lucien, for the uninitiated, what exactly is IR35?
IR35 is tax legislation that was introduced in 2000 to help the government tackle tax avoidance in the form of ‘disguised employees’. These were contractors who would otherwise be employees (determined by the tasks that they were performing) if it were not for the fact they were being paid through a limited company, and as such paying less tax and national insurance.
Initially, the contractor was responsible for determining their own status, but 17 years on from this, there were tweaks to this legislation within the public sector. These changes made the organisation responsible for the status determination of the worker, rather than the contractor themselves. They had to decide whether the assignment was ‘inside’ or ‘outside’ IR35. If it was ‘inside’, then tax and NI contributions would have to be made as if the contractor was an employee. If it was ‘outside’, then it could be considered a true contract assignment.
What’s changing in 2020?
These changes in liability are now being extended to the private sector. The government considered the public sector rollout a success in terms of revenue collection, and believes that once the changes are rolled out to the private sector that they will collect an additional £1.2 billion in tax by the end of 2024.
Was it a straightforward change within the public sector?
It’s would be fair to say there were a few challenges. Firstly, already overburdened public bodies were asked to complete lengthy administrative processes, making a determination on every individual assignment. This meant that inevitably, in order to stay within the guidelines of the legislation, blanket decisions were made that placed many contractors ‘inside’ IR35 that didn’t always need to be.
Contractors placed ‘inside’ IR35 lost, on average, between 20-25% of their take home pay, and therefore public bodies experienced a considerable erosion of talent as these workers moved to private sector roles or even abroad.
Have the challenges now been resolved?
Yes, to an extent, in that the government bodies now have clear processes to make their determinations. Ironically the financial challenges will be nearer to a resolution once the private sector changes are introduced, as this will level the playing field and enable the public sector to be more competitive in terms of payment and flexibility.
In your opinion, are businesses in the private sector ready for the IR35 changes?
It’s very mixed! Some organisations have already put in place processes to make determinations and have been very proactive in looking ahead at the financial impact and the legal implications. However, some organisations are just hoping it might not happen and ignoring it for now – it’s a bit like Brexit in that way! As the changes look more certain to go ahead more and more of our clients are getting in touch to discuss the changes and ensure that they’re ready.
How can M Cubed help companies navigate the change?
If you work with a company like M Cubed, you will be fully supported through the changes – we are proactively reaching out to our clients to ensure that they’re ready. We have a dedicated compliance department which I head up, and having worked in the public sector through the 2017 changes, I’m confident we can help our clients through with minimal impact.
We have also partnered with specialist tax lawyers Osborne Clarke to create a bespoke scorecard, enabling our clients to determine whether their contractors fall ‘inside’ or ‘outside’ of IR35. I would be very happy to discuss this with any organisations that are concerned about the upcoming legislation – please feel free to drop me an email on Lucien.firstname.lastname@example.org .
If you’d like some more detailed information about IR35, how it might affect your business and how M Cubed can help, please download our Guide to IR35 here.