The IR35 divide

As we slowly emerge from the difficulties of the last 18 months, the outlook for the economy appears bright.

We are beginning to see investment levels start to rise, high streets starting to reopen, and the economy showing signs of recovery. According to the REC’s report on Jobs for June, “The steady return to more normal business operations, improved market confidence and greater demand for staff all drove a further marked increase in recruitment activity in June. Permanent staff appointments expanded at the quickest rate since the survey began in October 1997”.

Particularly interesting was the news that “temp billings growth hit its highest for nearly 23 years”. This is surely a sign of businesses looking to get back to pre-pandemic levels but not quite confident enough to respond by taking on permanent employees.

While this might sound like a positive for contractors, the introduction of the IR35 reforms to the private sector earlier this year has created a divide within businesses that is likely to get worse as a result of recent good news.

Attracting talent post IR35 reforms

In a recent article, IR35 reforms – Warnings becoming a reality, we highlighted how the war for talent was probably the most significant risk of all to engagers as the economy began to recover.

The loss of specialised and high-calibre talent due to “inside IR35” determinations or blanket statements was repeatedly raised as a threat to engagers looking to circumnavigate the IR35 reforms. Contractors migrating to companies offering “outside IR35” assignments are leaving huge skills gaps and gaping holes in project capability and success.

Critically, this is not likely to happen gradually over time; it is happening almost immediately. We already see examples across various industries where engagers took a blanket approach and ruled all of their PSC contractors inside IR35 and suffered an almost instant loss of a significant and skilled section of their workforce. Leaders and Managers are now struggling to attract the talent and expertise needed to complete work and projects on time and to standard.

The costs of losing business, missing deadlines and project failure

This is where the divide caused by the IR35 Reforms really begins to tell.

The incorporated costs of failing to deliver on projects or missing deadlines for delivery can often reach hundreds of thousands, if not millions, of pounds depending on the size of the project.

Additionally, there is also the opportunity cost of future projects and work lost due to incapacity to deliver. Add in the costs of brand and reputational damage due to poor project delivery, reduced quality and extended completion times, and the potential impact on a business’s profit and loss is difficult to ignore.

Legal and taxation – IR35 risk-averse

In many cases, higher volume contract engagers have taken advice from legal departments and advisors to avert the IR35 legislation due to the risks and potential costs involved. It’s true that should an engager be found to have made an incorrect IR35 status determination, then the liability for any unpaid taxes and NI would fall upon them.

However, are the amounts of tax and NI accumulated really going to hit the hundreds of thousands that a failed project might incur?

HMRC has also actively promoted a soft introduction for the reforms, so engagers have the first 12 months to get their processes right before facing any financial penalties for incorrect determinations.

As an extra safety net, an insurance policy that supports a strong compliance process can almost completely wipe out the risk of IR35. Policies provided on the strength of the compliance process will usually include First and Upper-tier tax tribunal representation, cover for previous tax years for up to six years, and cover all defence costs, including liabilities and penalties.

Therefore, engaging with suppliers with insurance protection should leave engagers with very little to fear from HMRC’s transfer of debt provisions and everything to gain from a talented contractor workforce keen to provide their services.

The risks and costs associated with IR35 cannot be discounted. However, are they really comparable to the risks and costs associated with the inability to provide a service or deliver against a project brief?

Time to re-think your IR35 strategy?

It’s not too late to implement or change your process regarding IR35, and we encourage anyone responsible for IR35 compliance to ensure that your determination process is fit for purpose and meets HMRC’s reasonable care requirements.

To help you reduce IR35 risk, retain a competitive advantage and meet your reasonable care responsibilities concerning IR35 compliance, Workr Group’s specialist team can provide impartial advice and support.

For a free, no-obligation audit and assessment of your IR35 compliance process, you can speak directly with Andy Webster, Founder and Director, Workr Compliance, on 07827 810851 or at aw@workrgroup.com.

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IR35 – Using compliance to win bids and tenders

Over the past 18 months, most if not all businesses have had to change to some extent.

The impact of the global pandemic has left its mark everywhere, and for those private-sector businesses associated with the utilisation and supply of temporary labour, there was the additional challenge of the IR35 reforms.

Introduced in April 2021, the IR35 reforms fundamentally changed the responsibility and process for assessing contractor assignments, forcing IR35 to the top of the agenda and further exposing the need for supply chain compliance.

For suppliers in the temporary labour market, the pandemic has all but removed the face to face sales route and challenged how they develop business and manage clients.

So how will the introduction of the IR35 reforms to the private sector and a rapidly changing, more remote sales process affect the future temporary labour market?

The changing sales process

Face-to-face interactions have always driven the traditional sales process. However, advancing technology and digital communications have slowly influenced these traditional views, and the pandemic of 2020 has challenged them further.

Buyers and decision-makers now spend less time meeting with suppliers and salespeople and more time conducting their own independent research. The enforced lockdowns caused by the pandemic have only served to exaggerate this behaviour.

An automated sales process structured around a formal bids and tenders process is now the preferred route for buying decisions for many businesses.

IR35 status determinations and umbrella company due diligence

In the lead up to the IR35 reforms in April 2021, many large scale engagers took an ultra-cautious, although potentially misguided approach. Policy changes or blanket statements determining all contractors as being caught by IR35 have been prominent.

As a result, the Umbrella company solution has been promoted as an alternative by those suppliers and engagers under pressure to retain their temporary labour workforce.

Whilst removing the responsibility of applying the IR35 legislation, these options come with their own responsibilities and risks. If income paid to contractors is taxed incorrectly in the eyes of HMRC, then someone will be held responsible, and this is where the main risk to businesses that engage contractors lies.

Without thorough due diligence of the supply chain or a robust compliance process for IR35 status determinations, engagers and agencies are leaving themselves extremely vulnerable to the risk of HMRC investigation and potential transfer of debt liability.

There are currently numerous stories in the marketplace concerning tax avoidance schemes, and most of these are associated with umbrella company models. For those engagers and agencies that have ushered contractors into umbrella solutions to avoid IR35, complicity is a real risk, and ignorance is no excuse.

Engagers that have made blanket statements or delegated status determinations to suppliers also risk falling foul of HMRC’s reasonable care requirements.

In both cases, the best form of protection is thorough due diligence and robust compliance. 

Effective bids and tenders

The recent introduction of the IR35 reforms will undoubtedly influence the focus of bids and tenders toward compliance and due diligence. The risks to engagers now associated with temporary labour usage should similarly shift the emphasis and weighting of assessment in the same direction.

Therefore, engagers and suppliers must understand the supply chain and implement processes that thoroughly check and vet suppliers and systems.

Engagers who have a thorough understanding of their supply chain should minimise the risk of engaging contractors and maintain a competitive advantage over less-prepared competitors.

Similarly, suppliers who can demonstrate robust compliance processes and thorough due diligence and compliance through their supply chain will undoubtedly see increased successes in bids and tender submissions.

Taking a robust, right-first-time approach to supply chain compliance will give peace of mind and confidence to all stakeholders in the process.

HMRC strongly recommends that engagers seek professional advice and assistance in effectively managing the temporary labour supply chain.

At Workr Group, our specialist team can offer impartial advice and assistance with all aspects of your supply chain, including our Umbrella solution – Workr Umbrella and our leading compliance service Workr Compliance.

For a free, no-obligation audit and assessment of your IR35 compliance process, you can speak directly with Andy Webster, Founder and Director, Workr Compliance, on 07827 810851 or at aw@workrgroup.com.

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IR35 reforms – Warnings becoming a reality

We’re almost three months in since the IR35 private sector reforms came into effect, and we’ve kept a close eye on what has happened in the marketplace.

As per one of our previous articles about HMRC’s “light touch” introduction, there has been little legislative or financial impact so far. We have yet to see or hear about how HMRC are policing the legislation post-reform.  

We will, no doubt, hear more on these issues over the coming months, and Workr Group will keep you fully updated as we hear more.

However, we are already seeing some impact from the introduction of the changes. Businesses that prepared a well-conducted, structured status determination process and followed reasonable care recommendations appear to have achieved business as usual without any major hold-ups.

For those that didn’t prepare (and in some cases, still haven’t) or made blanket or policy statement changes, the impact has been almost immediate.

IR35 – Predictions and warnings?

While most of the initial talk around the impact of the IR35 reforms was focused on the financial impact of making an incorrect determination, there were other predictions and warnings about the potential impact.

Administrative bottlenecks
The IR35 reforms stated that the engager needed to make a status determination for each contractor and take reasonable care in doing so. This change in responsibility created additional administration for the engager due to the initial assessment and the potential for challenges, and the added associated burden.

Due diligence
With the anticipated shift of volumes of contractors to umbrella solutions, warnings were made to engagers about ensuring that their supply chains were compliant and operating in line with UK tax and employment law.

Talent wars 
Probably the most significant risk of all to engagers was the loss of specialised and high-calibre talent due to “inside IR35” determinations. There were repeated warnings made about contractors migrating to companies offering “outside IR35” assignments and leaving gaping skills gaps behind them.

Three months in, and what are we seeing?

In the short time since the introduction of the reforms, we have already seen and heard of several cases where engagers that took a blanket statement approach and are now bogged down with a flood of challenges from contractors.

Failure to consider or respond to an SDS challenge will likely be regarded as a lack of reasonable care by HMRC and will significantly increase the risk of liability should HMRC find an assessment to be incorrect.

As anticipated, many contractors who received ‘inside IR35’ determinations have moved onto engagers payrolls as employees or transferred to umbrella company payroll models. This may seem a good solution for both engager and HMRC, however, market undertones suggest that there are still many illegal umbrella schemes around that could leave contractors, agencies and engagers in serious trouble if found to be complicit.

A lack of due diligence on the supply chain is highly likely to be frowned upon by HMRC, and once the reforms have bedded down, we suspect that the umbrella sector will come under renewed scrutiny from HMRC.

Most prominently, we have seen an immediate response in the migration of contractors.

For example, in the rail infrastructure sector, we have seen a large number of specialist contractors migrate from an engager that determined them to be inside IR35 directly to a competitor offering outside IR35 assignments.

The original engager took a blanket approach and ruled all of their PSC contractors inside IR35 and suffered an almost instant loss of a significant and skilled section of their workforce. They are now struggling to find the talent and expertise needed to replace those PSCs that moved on. This is having a significant impact on its ability to complete the work and projects on time and to standard.

We have also seen many examples of contractors who were given little choice but to transfer to employment contracts directly with engagers and are now resigning and moving to more lucrative permanent roles with competitors or alternatives.

In summary

Nobody wants to hear the phrase “I told you so”; however, there were plenty of warnings made before the IR35 reforms regarding the potential impact for engagers who chose to ignore the reforms or make blanket decisions.

The consequences of these actions are already being felt and are only likely to get worse as more contractors migrate to engagers offering a credible determination process and outside IR35 assignments.

Additionally, risks also remain for those engagers who chose to take a blanket approach. HMRC will undoubtedly conduct investigations into those sectors or businesses that promoted a shift to umbrella models.

It’s not too late to implement or change your process regarding IR35, and we encourage anyone responsible for IR35 compliance to ensure that your determination process is fit for purpose and meets HMRC’s reasonable care requirements.

To help you retain a competitive advantage and meet your reasonable care responsibilities concerning IR35 compliance, Workr Groups’ specialist team can provide impartial advice and support.

For a free, no-obligation audit and assessment of your IR35 compliance process, you can speak directly with Andy Webster, Founder and Director, Workr Compliance, on 07827 810851 or at aw@workrgroup.com.

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A Guide to Statements of Works

Following the introduction of the IR35 reforms to the private sector in April 2021 private sector businesses (engagers) that utilise personal service company (PSC) contractors have been presented with some complex challenges.

The changes in responsibilities brought about by the reforms have increased financial risk, added administrative burden, and reduced available and flexible skills and expertise hindering their ability to provide services or complete projects efficiently and profitably.

In response, many agencies and engagers have looked at alternative methods of engagement that would help retain access to a flexible and skilled resource whilst complying with or circum-navigating the IR35 legislation. One such common idea has been the Statement of Works or SoW.

Touted by some as the answer and a guaranteed solution to IR35, the Statement of Works presents an alternative solution to providing services but must not be mistaken for an IR35 get-out.

Workr Compliance has compiled a useful guide to Statement of Works that explains everything you need to know:

  • What exactly is is a Statement of Works and who uses them?
  • What details should be included in a Statement of Works and how do you manage them?
  • How can a Statement of Works impact IR35 and does it offer a realistic solution?

To get the answers and determine if a Statement of Works approach could benefit your business download the guide or contact us for a free no obligation discussion.

Email Andrew Webster, Founder and Director Workr Compliance at aw@workrgroup.com

Complete the Form to Receive our Statements of Works Guide

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Expectation vs Reality: The Fallout Of The IR35 Roll-Out So Far

With the deadline behind us, we’re finally starting to see the ramifications of preparing – or failing to prepare – coming to fruition for engagers and fee payers. Join Workr Compliance and STR Group at 4pm on Wednesday, 5th May for a review of the last few weeks, and key advice for maintaining BAU in the months ahead….

Hosted by Andrew Webster, Founder and Director at Workr Compliance, who will be joined by David James, Engineering Programme Director at STR Group and former IR35 Project Lead at WORLEY, this session will provide actionable insights on:

  1. Continuation of assessing PSCs
  2. Audit of the IR35 programme
  3. Upskilling of new Managers
  4. IR35 legislation updates

The prediction and warnings have transpired; we have seen both Engagers and Fee Payers ill prepared for the changes despite months of advice and guidance from all angles. Whether you’re one of them – or simply keen to maintain best practice and BAU moving forward – we have plenty of observations to share from the past few weeks.

Join us for insights on the good, the bad and the ugly, as well as advice on what Engagers and Recruitment Agencies can do pretty quickly, to attract and retain talent whilst adhering to the legislation…

NOTE: If you cannot attend live on the day, you can still register to receive a free recording after the session.

Missed it? View the webinar recording

  • The password protected webinar recording is available here. Complete this form to receive a password.

    Please see our privacy notice for more information but where your enquiry may include Personal Data please confirm your consent to the use and storage of that data by the Workr Group for the purposes of your specific enquiry as Opted-In below, over and above any legal obligations we may have to store and process your data. You may at any time withdraw your consent by notifying our Data Protection Officer at dpo@workrgroup.com or by using the specific online form.

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HMRC soft landing + IR35 Insurance + preparing for BAU = Confused?

Everything you need to nail the final sprint to April 6th 

Join Workr Compliance and STR Group at 10am on Thursday 11th March to get essential clarity on compliance, insurance and what BAU looks like post April…

Hosted by Andrew Webster, Founder and Director at Workr Compliance, who will be joined by David James, Engineering Programme Director at STR Group and former IR35 Project Lead at WORLEY, this session will provide actionable insights on:

With confusion still evident in the marketplace, Andrew and David will provide clarity to engagers (end clients) on three key areas of IR35: HMRC’s soft landing, insurance and preparing for BAU. They will provide their experience-led advice and best-in-class guidance to engagers going through the latter stages of preparing for 6th April – and indeed beyond. The session will explore the key considerations including what should be done, by when and with whom and provide you with an opportunity to have any burning questions you may have answered. 

With only 16 working days left before the Reform can you afford to miss out? 

NOTE: If you are cannot make it on the day, you can still register to receive a free recording after the session. 

Missed it? View the webinar recording

  • The password protected webinar recording is available here. Complete this form to receive a password.

    Please see our privacy notice for more information but where your enquiry may include Personal Data please confirm your consent to the use and storage of that data by the Workr Group for the purposes of your specific enquiry as Opted-In below, over and above any legal obligations we may have to store and process your data. You may at any time withdraw your consent by notifying our Data Protection Officer at dpo@workrgroup.com or by using the specific online form.

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Demystifying off payroll working for the entire contractual chain (whilst protecting your interests)

Workr Compliance and Markel Tax will be hosting an exclusive webinar, limited to 100 guests on Thursday 18th February from 10am to 11am.

The session will provide specialist insights on:

  • Understanding where the risk/liability lies
  • Anticipated enforcement; practical steps to remain compliant
  • What is IR35 Tax Investigation and Loss insurance and, why is it needed in the contractor recruitment supply chain?

Hosted by:

Andrew Webster, Founder & Director at Workr Compliance, will be moderating the discussion and joined by a leading IR35 and tax insurance expert:

Paul Mason, Head of Tax Partnerships at Markel Tax, will be providing a thorough overview of IR35 Tax Investigation and Loss insurance and the importance of having it in the supply chain.

The majority of Engagers are getting prepared for 6th April legislative changes and, indeed so are Fee Payers. Whilst preparations continue, a much anticipated discussion on indemnification of liability has raised its head over recent months. Workr Compliance and Markel Tax are aware that there is choice in the market for such insurance products, but why not hear first hand of ‘the whys and wherefores’ of obtaining it, in that it is not merely a tick box exercise but evidence of longer term compliance.

Lastly, there is much debate in the market as to ‘who will pay for the insurance?’ or indeed ‘is it actually needed?’ – have a platform to share your views amongst your peers on this subject matter.

Missed it? View the webinar recording

  • The password protected webinar recording is available here. Complete this form to receive a password.

    Please see our privacy notice for more information but where your enquiry may include Personal Data please confirm your consent to the use and storage of that data by the Workr Group for the purposes of your specific enquiry as Opted-In below, over and above any legal obligations we may have to store and process your data. You may at any time withdraw your consent by notifying our Data Protection Officer at dpo@workrgroup.com or by using the specific online form.