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?
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
Webinar Recording – Demystifying off payroll working for the entire contractual chain (whilst protecting your interests)
Workr Compliance and STR Group will be hosting an exclusive webinar, limited to 100 guests, on Thursday 4th February, 4pm – 5pm.
The session will provide specialist insights on:
Preparing for 6th April 2021; at what stage of project delivery should you be at with 47 working days to legislative change
What are the key components of ‘best in class’ IR35 project and?
Identification of probable ‘bottlenecks’ to project delivery on time and, what action can be taken
Andrew Webster, Director at Workr Compliance, will be moderating the discussion and joined by leading compliance, project management, and employment status tax experts:
David James, former IR35 Project Director at WORLEY and now Engineering Programme Director at STR Group.
Sue Ollerenshaw, Director, Employment Tax Expert
The Private Sector is being told by many stakeholders to ‘prepare’, whilst it is sensible advice, it is potentially not the detailed advice from experience that is being gleaned and, that such detailed advice based on key learnings of delivery would be of greater value as we get closer each day to the 6th April!
The open discussion session will provide a platform for end client attendees to hear, first hand, the genuine challenges likely to be faced of delivering a IR35 project that meets HMRC Reasonable Care’ whilst not affecting day to day operational delivery.
We have a limited number of places available. RSVP by completing the fields to secure your place.
IR35 changes – Maintaining a compliant supply chain
With the IR35 Reforms due to take effect in the UK private sector on the 6th April 2021, there has been a lot of speculation about the increase in the use of umbrella companies.
The decision to defer the IR35 changes earlier this year came as a massive relief to many organisations within the temporary labour supply chain. In our article, IR35 – deferred, not defunct! Workr Group outlined how this relief is likely to be shortlived with the reforms almost certain to take effect in 2021.
However, the deferral of the IR35 changes did give a clear indication of the strategies that contract users are likely to take in response.
Responses made in preparation for the original April 2020 IR35 changes indicated that many large scale engagers took an ultra-cautious, although potentially misguided approach.
Policy changes regarding the utilisation of contractors supplying their services via an intermediary (personal services company or Limited Company) or blanket statements determining all contractors as being caught by IR35, appeared prominent. Our previous article IR35 Changes – Blanket Statements Uncovered outlined some of the risks involved in these approaches.
As a result, the Umbrella company solution has been promoted as an alternative by those suppliers under pressure to retain their temporary labour business.
What is an Umbrella Company?
An Umbrella Company will employ a contractor in a similar way to any other employer. The contractor is a permanent employee engaged in working on a number of assignments. They are provided with a Contract of Employment under the Employment Rights Act 1996, granting full employment rights.
The umbrella company contracts with the client or agency and takes care of all the administration matters.
Umbrella companies are used by many contractors because they provide a simple, cost-effective and flexible operating structure.
All income is paid out through the PAYE tax system.
The umbrella will take care of all the administration, tax and payroll work for the contractor — providing insurances to cover the contractor working on an assignment.
The IR35 legislation does not apply to contractors engaged through an umbrella company, making the option more appealing to engagers.
How does the umbrella solution impact engagers?
The removal of the IR35 legislation, and it’s associated responsibilities, is likely to be an attractive proposition for engagers.
However, engagers presented with an umbrella solution should seriously consider the consequences before committing.
Whilst the umbrella solution appears to be the perfect diversion around the IR35 roadblock, there are still risks and responsibilities that the engager cannot relinquish.
Any engager making mass IR35 determinations or blanket statements, or enforcing an umbrella only policy, risk alienating themselves from the talent pool of contractors that legitimately provide their services through a personal service company.
Attracting and retaining top talent is already tricky enough, but contractors are far more likely to be attracted to engagers that offer a fair and considered IR35 determination process.
What are the risks to engagers of utilising an umbrella solution?
First and foremost, the engager still has a responsibility for ensuring that its temporary labour supply chain operates compliantly.
The engager must demonstrate that it has taken reasonable care in the construction and management of its supply chain. Considering reasonable practical ability and competence, this includes ensuring that tax and national insurances are administered and paid correctly.
Failure to demonstrate reasonable care could result in HMRC transferring debts up the supply chain to engagers where taxes are unpaid.
Whilst the umbrella solution is well established, and many providers have operated it compliantly for many years, there are still regular examples of umbrella models that represent tax avoidance schemes in the eyes of HMRC.
Engagers must be confident that such uncompliant models are not being practised and utilised within their supply chains as the financial and reputational risks could be substantial.
What should engagers look out for with umbrella solutions?
A compliant umbrella company should operate in line with UK tax law with contractors becoming employees and income being treated as employment income and taxed via the PAYE scheme. It will provide the contractor with statutory holiday and sick pay entitlements and is also likely to offer additional benefits such as healthcare and insurances.
Engagers should also look out for accreditations to bodies such as the Freelancer and Contractor Services Association (FCSA) – fcsa.org.uk, a self-governing body for umbrella companies that conducts regular and robust audits of its members, Workr Group included.
Umbrella schemes operated by providers with FCSA accreditation are assessed and investigated thoroughly to ensure compliance.
However, there are hundreds of providers in the umbrella marketplace, many operating without governance or accreditation. Subsequently, there have been many examples previously of schemes advertised as umbrella arrangement that, once inspected more closely, have elaborate payment arrangements that do not conform with UK tax law.
In particular, a more recent example has been exposed and labelled as the Mini Umbrella Company or MUC. In this case, hundreds of small limited companies are set up to exploit small business incentives such as the flat rate VAT scheme and the Employment Allowance.
In some cases such as the MUC, even the contractors are unaware of the structure of the umbrella model under which they are employed. It is easy to see, therefore, how difficult it can be for an engager to spot an illegal umbrella model.
What should engagers do now to ensure a compliant supply chain?
We encourage anyone with a responsibility for a temporary labour supply chain to ensure that your due diligence process for checking compliance in the supply chain, is fit for purpose and meets HMRC’s reasonable care requirements.
Whether you engage contractors that provide services via a limited company or are employed by umbrella companies, there are significant risks involved.
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.
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The term ‘blanket statement’ has become synonymous with a specific approach to the impending IR35 changes due on the 6th April 2021, but what constitutes a blanket approach and what are the consequences of getting it wrong?
Perceptions are that some organisations, in the automotive industry, for example, have adopted a blanket approach. However, this is neither proven nor has it been tested in a case of law.
What is clear is that a great deal of ambiguity remains amongst engagers and contractors alike!
IR35 – what does reasonable care mean? Let’s recap
In our previous article, IR35 – deferred, not defunct! Workr Group outlined the changes in responsibilities for engagers along with recommendations on how to achieve reasonable care.
The IR35 changes state that, as the engager, you must take reasonable care in how you go about making an IR35 status determination.
By reasonable care, HMRC means that you must conduct a thorough and detailed assessment of the work to be carried out by the contractor (worker).
HMRC recommends that you:
Formalise and record a consistent process.
Seek professional advice and assistance.
Involve relevant parties or individuals.
Use a determination test tool.
Regularly review determinations.
Define and communicate a transparent process for challenges.
How does this impact engagers?
Clearly, for companies that engage contractors who provide their services through an intermediary (personal service company or PSC), the IR35 changes will increase in the time and administration required.
As a result, it would appear that some engagers have opted to conduct mass determinations to try to reduce the administrative burden. Making mass determinations for all or large groups of contractors has commonly become known as making a blanket statement.
Previously in the rail sector and more recently in the automotive industry, concerns have been raised about engagers adopting the blanket statement method.
What are the risks of making blanket statements concerning IR35?
Where the engager is deemed not to have taken reasonable care in determining the IR35 status of a contractor, HMRC can transfer any debt for unpaid taxes to the engager.
Determining that every worker who provides their services through an intermediary is caught by the off-payroll working rules without giving any consideration to the specific facts of each individual case.
Determining that the off-payroll working rules apply to a large group of workers who have some variations between the work that is being carried out, without giving proper consideration to the different working arrangements for each worker.
If therefore, making blanket statements does not constitute reasonable care, then the implications and risk for engagers are significantly increased.
In the UK automotive sector, for example, some companies engage hundreds, if not thousands of contractors meaning failure to take reasonable care could represent a substantial financial risk.
Additionally, the time saved by making blanket statements is likely to be expended many times over as a result of the high volume of challenges made by contractors in response.
IR35 – does outsourcing the determination process constitute reasonable care?
In the guidelines outlined above, HMRC encourages the involvement of professional advisors in the determination process.
Engagers who utilise such support will be demonstrating a commitment to making fair and reasonable determinations and will likely be looked upon favourably by HMRC and contractors alike.
However, this approach comes with a caveat!
Simply outsourcing the determination process to another party does not relieve the engager of responsibility or liability and may not be deemed as taking reasonable care.
A person cannot simply appoint an agent and deny responsibility for their tax affairs. The person still has a duty to take reasonable care, within their ability and competence, to make sure that what they are signing for is correct. The person has to show that they took reasonable care, within their ability and competence, to avoid default by their agent. This will include:
Making sure that they give the agent all relevant information with which to work. No agent, for example, can produce correct accounts and returns from grossly deficient records, or give accurate advice if they do not have all the facts.
Implementing the professional advice received and not neglecting some vital step.
Checking the agent’s work to the extent that the person is able to do so. For example, an ordinary person cannot be expected to challenge specialist professional advice on a complex legal point. But they ought to be able to recognise the complete absence of a major transaction.
IR35 — what should engagers do now?
We encourage anyone with a responsibility for IR35 compliance to ensure that your determination process is fit for purpose and meets HMRC’s reasonable care requirements.
Whilst it may seem time-consuming and burdensome initially, the mitigation of risk and time saved by taking a robust, right-first-time approach will give peace of mind and confidence to all stakeholders in the process.
With the IR35 changes now less than six months away, now is the time to review your determination process!If you have found this useful, then you can find further information on IR35 here.
Last week saw IR35 placed well and truly back on the agenda. On Wednesday 18th November, Workr Compliance joined OPRaaS and Engage Technology Partners for an exclusive webinar. Later the same day, I was part of the panel for Venturi’s online event, which looked at ways to reduce costs and increase compliance of a temporary workforce.
Both events saw a variety of end clients from aviation, retail and manufacturing – and it was music to my ears to see that many have started to prepare. One thing that interested me however, was that engagers – big and small – are frequently coming up against the same obstacles and asking the same questions. So, let’s tackle a few of them head on…
One of the biggest fears that seems to resonate with everyone I speak to is nervousness over not understanding responsibilities. Whereas before your contractors had responsibility to consider and determine their IR35 status for tax purposes, it now falls to you.
With the threat of fines and non-compliance, it’s easy to get caught up. So break it down into stages. First, evaluate your business needs, and how you plan to handle the compliance project. Then, determine whether or not contractors who work for you are inside or outside of IR35 legislation. You’ll also need to communicate your findings so you can come to an agreement around new contracts before updating your payroll and HR system.
Once aware of their responsibilities, many businesses choose to lean on an external party for a simple, accurate and transparent solution. But there seems to be a huge question mark over where you go to get that expertise. Do you choose a third-party consultant or allow a recruitment agency to shoulder all of the risk?
Both are viable options, but when engagers (end clients) do partner with a recruitment agency, I find they often don’t know what to do with them or how to use their expertise. I’ve also seen end clients utilising the services of a third-party consultant but still relying on tools like CEST – which we all know is problematic. Do your research, speak to your peers, and trust whoever you choose for external support. They’re experts after all.
Effective IR35 preparation needs teams from HR, payroll, recruitment and many other business functions to work together. It’s a tough balancing act – no-one wants too many cooks in the kitchen. So I wasn’t surprised when attendees at the webinar were asking, “How can I ensure everyone is on board?”
It’s important to map out the responsibilities of each department, communicate these to individuals and delegate tasks. That way, everyone will feel involved. Time will be your saviour though. After all, it can be difficult enough to book one meeting – let alone trying to organise multiple teams on one project.
So, how can Workr Compliance help?
For starters, Workr Compliance can support you in your status determination by conducting IR35 assessments on each of your contracts. If any are deemed inside IR35, we will advise you on pay options – such as a compliant umbrella solution which will reward contractors with benefits, and help you to attract and retain top talent going forward.
So, whether you’ve got an IR35 question of your own or want my advice with your preparations, drop me a message today at firstname.lastname@example.org for a free 30-minute consultation.
With the Off Payroll Private Sector Reform just around the corner, Workr Compliance have collaborated with recruitment agency STR Group to help them prepare for the changes and support their largest clients.
Below, we explore what the collaboration means for STR Group – as well as what you can do if you’re yet to prepare for the IR35 changes in April 2021.
Supporting business as usual
Working in collaboration with Andrew Webster and the Workr Compliance team, STR Group wants to support engagers, meet their business objectives and maintain business as usual ahead of the reform and beyond.
David James, Engineering Programme Director at STR Group, said the collaboration between STR and Workr would provide consultancy to their largest clients, and reiterate their message that IR35 preparation needs to start now.
Helping clients take reasonable care
It’s not just about preparing either. Businesses need to ensure that they are preparing in the right way – and that includes showing reasonable care and not just using blanket determinations. After all, scoping your projects and the IR35 status of your contractors is just the beginning.
Once you’ve determined the status of your projects, you need to highlight how and why you came to that decision, demonstrating that you’ve thoroughly reviewed an individual’s contracts and working practices among other factors. IR35 compliance isn’t just about the initial status assessment either – it’s about continuously assessing your projects, ideally every 12 months as a minimum. This is something that Workr Compliance will be supporting STR Group with.
Ensuring proper preparation
Despite having originally meant to come into effect in April 2020, many businesses are still yet to prepare for IR35. And now, with the UK economy struggling amidst the COVID-19 pandemic, many are warning that the government may use non-compliance as a means of raising capital.
Recent stories, including that of Transport for London, also highlight that HMRC will treat all those suspected of non-compliance equally, regardless of the organisation. In fact, compliance of the entire supply chain is at the forefront of the government’s mind. STR Group recognises the value of having a robust process in place ahead of time in order to be compliant from the get-go.
Turn to us for support
At Workr Compliance, we’re not only dedicated to helping end clients, agencies and contractors prepare for the Off Payroll Private Sector Reform, but we also want to get more people talking about it. IR35 shouldn’t be feared. In fact, it brings with it an opportunity while attracting and retaining talent.
It’s for this reason that we have decided to launch a new webinar series that will highlight the stark reality of the IR35 reform and what it means for the future workforce. More information will be released on our social media channels soon, but you can contact us via our dedicated IR35 Hub if you have any questions in the meantime.
Why IR35 is just the tip of the legislative iceberg…
Workr Compliance is delighted to announce their appointment of David McCracken as Head of Sales as they expand their services into Scotland.
With over 25 years of recruitment experience, David will bring his unique insight and advice to both organisations and individuals on IR35 and employment options.
Having worked his way up to Director level in companies such as Rullion, David has been involved in infrastructure, commercial, rail and civil projects in the North East, and has extensive experience and knowledge in the Aberdeen and Inverness area. In his spare time, he also supports Football Memories – a partnership between Alzheimer Scotland and the Scottish Football Museum – and is a referee and coach of an under 17’s football team.
His arrival as Head of Sales marks the latest business development for Workr Group as a whole, and he will be an integral part of the team as they provide award-winning customised accounting, umbrella employment and tax solutions to the UK’s flexible workforce.
Headed up by Andrew Webster, Workr Compliance hopes this new appointment will provide them with a greater presence as they support their clients in preparation for the Off Payroll Private Sector Reform in 2021. David will be based in the Central Belt but will be visiting businesses and individuals in Scotland, advising them on the changing legislation.
David McCracken, Head of Sales for Scotland, said: “I’m absolutely delighted to be appointed as Head of Sales. I’ve been in recruitment since 1994, so I know exactly what end clients and recruiters want. This appointment means I can combine my recruitment knowledge with Workr’s tax expertise to help provide a bespoke and clear strategy. It’s important that we are providing a tax-efficient work process, and I’m extremely passionate about making sure that everything Workr does is ethical.
“With the Off Payroll Private Sector Reform just around the corner, I’m determined to show people that IR35 isn’t scary. I want to give confidence to our end clients while highlighting the opportunity it presents for them to get closer to their own clients.”
Andrew Webster, Founder and Director of Workr Compliance, said: “‘I’m genuinely delighted to have David as part of the Workr Group team. He brings with him an extensive understanding of the recruitment supply chain from an operational, commercial and client management perspective. In the short time I’ve worked with David, his focus on effectively engaging with key recruitment agencies and end clients in Scotland has seen some immediate wins. Workr Compliance, and indeed the broader Workr Group, now has a genuine presence in Scotland, focussing in the short-term on helping end clients and agencies prepare for the IR35 Private Sector changes in April 2021.”
As we entered 2020, one of the key topics on our agenda was the IR35 Off Payroll Private Sector Reforms.
The intermediaries legislation, as it is also known, had seen some controversial reforms already introduced to the public sector back in 2017. These reforms were due to make their arrival in the private sector on the 6th of April 2020.
However, as a result of the COVID pandemic and resultant lockdown measures, the Government made the decision to defer the reforms until the 6th April 2021.
Whilst the decision to defer was a great relief to many, we now find ourselves only six months away from the implementation of the reforms.
For those hoping that the legislation would be scrapped or forgotten, the reality is that the legislation is already law, although not yet enforced.
Barring any extraordinary legal or political development, the changes will take effect on the 6th of April 2021.
What is IR35? Let’s recap
IR35, also known as the Intermediaries Legislation, is tax legislation aimed at tackling tax avoidance.
The legislation is designed to test whether workers providing their services and expertise to a client via an intermediary, such as a limited company, would otherwise be an employee of the client if the intermediary did not exist.
If caught by the IR35 legislation, the earnings of “deemed employees”, as they are referred to by HMRC, are subject to income tax and National Insurance Contributions (NIC’s).
What are the IR35 reforms?
It is currently the responsibility of the worker to determine whether their assignment is caught by IR35. The worker is also responsible for paying the correct taxes dependent on their IR35 status.
The reforms, scheduled to take effect in the private sector from 6th April 2021, will see the following key changes:
Shift the responsibility of IR35 determination from the worker to the engager (the company utilising the worker).
If caught by IR35, the responsibility for the payment of income tax and NICs will also shift from the worker to the fee payer (the organisation paying the worker for their services). This could be the engager or an agency (if the worker is supplied in this manner).
Does IR35 affect my business?
If your business utilises workers who provide their services via their own limited company, either directly or via an agency, then the IR35 legislation may apply to you.
There is an exemption for small businesses who meet any two of the following three criteria:
Turnover – not more than £10.2 million.
Balance sheet total – not more than £5.1 million.
Number of employees – no more than 50.
Where a worker is engaged by a small business, the responsibility for determining the IR35 status, along with the payment of taxes will remain with the worker.
What should you do if IR35 applies to your business?
If your business engages workers and is not classified as a small business you will need to prepare for your new responsibilities once the reforms take effect.
The key change that you must prepare for is your new responsibility for determining the IR35 status. The legislation states that, as the engager, you must take reasonable care in how you go about making the determination.
Once you have made the determination, you will also be responsible for communicating the results of your determination to the next party in the supply chain. This must be done in the form of a Status Determination Statement (SDS).
What does reasonable care mean?
By reasonable care, HMRC means that you must conduct a thorough and detailed assessment of the work to be carried out by the worker.
This assessment must include the working conditions and terms under which the service is to be provided.
HMRC recommends that you:
Formalise and record a consistent Status Determination process which is regularly reviewed to ensure fitness for purpose.
Seek the advice and/or assistance of a qualified, professional advisor such as the Workr Group.
Involve people with a good understanding of the work to be conducted in the determination process.
HMRC recommends the use of its Check Employment Status for Tax (CEST) test although this is not mandatory. There are a number of excellent alternative tools capable of producing robust and accurate determinations. It is highly recommended that you utilise a status determination test tool wherever possible. Such tools simplify the determination process and promote consistency across tests.
Ensure that determinations are regularly reviewed to ensure continued accuracy and validity.
Ensure that new status determinations are conducted after any material changes to terms or working conditions.
Define and communicate a clear process for challenges against determinations.
What are the risks of not taking reasonable care?
Once the engager has issued the SDS to the fee payer, all responsibilities then pass to the fee payer.
HMRC will always approach the fee payer in the first instance when conducting an investigation with regard to whether reasonable care has been met. However, any recourse could lead HMRC to the engager.
Where the engager is deemed not to have taken reasonable care in determining the IR35 status of a worker, HMRC can transfer any debt for unpaid taxes to the engager.
The same can be said for if the engager fails to respond to any challenge made by the worker against the determination.
It is vitally important, therefore to follow the guidelines above to ensure that reasonable care is taken during the determination process.
Debts can also be transferred where the fee payer simply does not pay taxes due to HMRC.
Where there is a chain of providers (MSP’s and agencies) involved in the supply of flexible workers, engagers must ensure that they conduct rigorous and regular due diligence checks of its supply chain in order to minimise its transfer of debt risk.
We have a specialist team at Workr Group that can support you with all aspects of compliance with IR35 and your flexible workforce.