Does your business use contractors ?

If your business uses freelancers or contractors, you’re no doubt aware of the changes in IR35 legislation, due to come into effect on 6 April.

But how prepared are you and what steps have you taken? You wouldn’t be alone if you were feeling concerned about what the new rules may mean.          

In a recent survey of 1,500 business owners, Be Digital UK found that 41% of companies were reviewing their strategy for the procurement of contractors due to IR35. While 21% of businesses said that they had already gone on to statement of work contracts, 11% said they were reducing their use of contractors entirely. Somewhat surprisingly, given all the media coverage, 35% of business owners said they weren’t even aware of the new proposals. 

What impact will the changes have?

The new legislation, which currently only applies to the public sector, will be expanded to cover the private sector. Under the new rules, if you are a medium or large-sized company, you will have to determine whether a contractor falls inside or outside the IR35 parameters. Currently, it’s the responsibility of the contractor rather than you, as the contractor’s client, to establish their status.

If IR35 reveals that a contractor should in fact be considered a full time employee by HMRC, you, as the client of the contractor, would need to set up PAYE or NICs. It’s feared that this could deter many SMEs from hiring contractors as many will just not want to take the risk of getting it wrong.     

It’s important, however, that businesses do not simply impose a blanket ban on using all contractors as a knee-jerk reaction. David Chaplin, CEO and Founder of Contractor Calculator Shield said, “As we leave the EU, reliance on a flourishing, flexible workforce will be vital and firms should not panic, provided they begin their compliance process now.” 

Moving to a position where you only hired PAYE employees would mean you would have to offer all the other benefits and statutory benefits that go with employment. 

The Government has implemented a review of the IR35 reforms in light of various criticisms but it has a short time frame so it is not thought the conclusions will have much impact on the legislation.

What do you need to do? 

If your business falls within the scope of the legislation, you need to be auditing your current use of contractors right now. Take the following steps:

  • Make time to get a broad understanding of the new rules.
  • Work alongside your accountant and ask them for advice.
  • Start reviewing and assessing each contractor’s contract.
  • Get your assessments done quickly. Outsource to specialists if necessary.  
  • Try and get compliant quickly so as not to be an easy target for HMRC.   

While it may sound time-consuming, IR35 is a good opportunity to review your workforce and your relationship with your contractors. If you can be ahead of the game in establishing which  contractors are genuinely outside IR35, you will be in a good position to access the best talent over your competition. Be aware, though, that some contractors will decide to close their public service companies down completely.

There is no denying that IR35 is a huge shake-up. However, it needn’t be a reason for genuinely self-employed contractors to lose out – or for the firms that hire them.