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

You will receive your download email from Workr Compliance. Easypay and Workr Compliance are part of the Workr Group.

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Workr Group joins JSA Group

JSA Group, provider of accountancy, payment and support services to the UK’s growing flexible workforce has acquired The Workr Group

The acquisition of The Workr Group strengthens JSA’s offering by enabling the provision of new technology, funding and consultancy services to the contingent workforce supply chain community, including back-office management solutions for recruitment agency partners. 

In addition, JSA will now be able to provide comprehensive compliance and payment solutions to international workers following Workr Group’s success in this arena, today managing over £100m of pay across 85 countries.

John Hoskin, CEO of JSA Group, said: “We were attracted to Workr primarily by the sheer quality of its people and breadth of services. It adds not only meaningful scale in our core outsourced employment, payment and accounting services but also significantly to the capabilities we can offer our customers and to the contingent workforce supply chain community,  from international payment solutions in a substantial range of territories to recruitment back-office outsourcing, compliance, funding, and technology.”

Matt Tyson, Managing Director of The Workr Group, said: “Over the last seven years, Workr has become synonymous with great customer service and innovation in the solutions we offer recruitment agents and the flexible workforce. Having spent a considerable amount of time speaking with JSA about their approach and the way they work, we are confident we have very strongly aligned values and that this transaction will be positive for our staff, clients, and contractors. The Board, all of whom are staying with the business, and the team at Workr, are tremendously excited about the prospect and potential of a collective offering with JSA.”

JSA, who have a 30-year track record, now support more than 1,000 recruitment businesses and 25,000+ freelancers and contractors. The transaction marks JSA’s eleventh acquisition since 2013 and its sixth since 2018 when the company was backed by Universal Partners. They are headquartered in Watford, UK, now with offices in London, Manchester, Leeds, Chester and Edinburgh as well as regional offices in the USA, UAE and India following the acquisition of The Workr Group.


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The fallout from the IR35 roll-out so far

The fallout from the IR35 roll-out so far.

After much conjecture and a twelve-month deferral, the IR35 Off-Payroll Reforms have finally been introduced into the private sector.

For those businesses that utilise personal service company (PSC) contractors, the responsibility for assessing whether contractors’ assignments fall inside or outside of the IR35 legislation now falls on them.

Not only is this a change in responsibility for businesses that engage PSCs, but it also comes with an increased possibility of financial liability, should they get it wrong.

So what are the initial reactions following the implementation of the IR35 Reforms?

IR35 – Prepared and ready?

The IR35 Reforms have been much publicised following their introduction to the public sector in 2017. Add in the COVID induced deferral, and businesses have had plenty of time to assess and prepare for the private sector reforms.

However, despite months of advice and guidance from hundreds of sources and angles, predictions and warnings have transpired, and we have seen both engagers and fee payers ill-prepared for the changes.

So far, we have witnessed and heard of cases where engagers of tens, hundreds, and even thousands of contractors have done nothing to prepare for the introduction of the IR35 reforms and not even issued a status determination statement (SDS). 

Alternatively, we have observed many engagers take a broad-brush approach and introduce “no PSC” policies or, more worryingly, make blanket “inside IR35” assessments.

In other cases, we have observed engagers taking the minimal actions possible to assess the contractors. Notably, we have heard of some engagers advising their contractors to conduct their own self-assessment by completing the HMRC’s Check Employment Status for Tax (CEST) test and feeding back results to obtain a status determination.

Whilst we have also witnessed some excellent IR35 work and preparation with some engagers, the volume of stories we have heard or witnessed regarding a lack of preparation is hugely concerning.

What are the implications of poor preparation and bad practice?

Reassuringly, before the implementation of the IR35 Reforms, HMRC announced that the reforms would get a “light touch” introduction, advising that genuine mistakes will go unpunished for the first 12 months following the introduction.

However, engagers should not interpret this approach as an excuse not to take action.

HMRC have issued regular updates over the last two years outlining their expectations of engagers following the reforms, and a lack of preparation is unlikely to be considered sympathetically.

So what are the possible consequences of poor preparation or a lack of action?

Consequences

Valid Status Determination Statements

The IR35 changes state that the engager must make a valid status determination and take reasonable care in doing so. The status determination is required to ensure that the correct taxes and deductions can be calculated and made per the legislation.

If the client fails to issue an SDS or take reasonable care, the responsibility for the deduction of tax and NICs, and the payment of the apprenticeship levy and paying these to HMRC will rest with it. That liability will always remain with the client unless it takes reasonable care in reaching its conclusion set out in the SDS.

Failure to take reasonable care is unlikely to be deemed a genuine error by HMRC and will therefore induce fines and penalties from day one.

Blanket Statements

Making blanket statements is also classified by HMRC as not taking reasonable care, meaning that this approach would also render the engager liable for deductions and penalties where errors occur.

The blanket statement approach is also likely to make the engager less attractive to those contractors seeking assignments outside of IR35, reducing their chances of attracting top talent, meeting work schedules or achieving project milestones.

The potential for reputational damage to the engager as a supplier or employer of choice is significant.

Determination test tools

HMRC released its Check Employment Status for Tax (CEST) tool some time ago, but this has proved inconclusive for many assessments, even in some of HMRC’s own test cases.

Simply directing contractors to conduct their own assessments using the CEST tool is unlikely to meet reasonable care requirements and offers no guarantee against incorrect assessments. 

Again, the responsibilities and liabilities for engagers taking this approach could be severe.

IR35 – avoid the risks

Engagers should not underestimate the benefits of having a defined, robust and compliant process for IR35 assessment.

Those prepared to invest in some simple processes and procedures can quickly and easily mitigate the risks posed by the new legislation.

If you’re looking for help to develop a compliant process or simply keen to maintain best-practice and BAU moving forward – we have plenty more observations to share from the past few weeks.

To learn more about 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. You can access a recording of our most recent webinar here – Expectation vs Reality: The Fallout Of The IR35 Roll-Out So Far

Alternatively, 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 – April 2021 and beyond

It’s now almost 12 months since the IR35 Off-Payroll Reforms were due to take effect.

Many businesses had invested time and money into preparations for the 6th April 2020 with collaborations, new systems and updated procedures only for the legislation to be deferred due to the pandemic.

With the reforms now in play, what should businesses be doing, and what should business as usual look like?

IR35 – Prepared and ready?

With the IR35 reforms now in effect, businesses still preparing can take some solace in HMRC’s announcement about a “light touch” introduction. Whilst it is imperative that businesses take action, genuine mistakes will go unpunished for the first 12 months following the introduction.

In a previous article, IR35 —  deferred, not defunct! Workr Group outlined the changes in responsibilities for engagers and recommendations on what HMRC expects from engagers concerning processes and responsibilities. Now that the reforms are in effect, engagers should be doing the following:

Status Determination Statement (SDS)

The IR35 changes state that the engager must make a status determination and take reasonable care in doing so. The status determination is required to ensure that the correct taxes and deductions can be calculated and made in accordance with the legislation.

According to HMRC’s Employment Status Manual (ESM10013), a valid Status Determination Statement must:-

  • state in the SDS whether or not the worker would be an employee or office holder, or is an office holder, for tax and NICs purposes if they were directly engaged by the client,
  • provide their reasons for coming to that conclusion, and
  • have taken reasonable care in coming to their conclusion (see ESM10014)

It is essential for engagers to note HMRC’s stance regarding reasonable care as follows:-

“If the client fails to take reasonable care, the responsibility for the deduction of tax and NICs, and the payment of the apprenticeship levy and paying these to HMRC will rest with it. That liability will always remain with the client unless it takes reasonable care in reaching its conclusion set out in the SDS.”

Reasonable Care

By reasonable care, HMRC means that the status determination must be thorough and detailed, giving an accurate and clear representation 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 and define and communicate a transparent process for challenges.

Determination test tools

HMRC released its Check Employment Status for Tax (CEST) tool some time ago, but this has proved inconclusive for many assessments, even in some of HMRC’s own test cases.

However, suppliers in the industry have constructed several other tests using case law examples, representing credible CEST alternatives.

Insurance

Many engagers who want to continue to utilise contractors have stipulated a need for IR35 insurance within the supply chain.

A comprehensive insurance policy that supports a robust determination process should eliminate almost all liability from engagers and put them in a prime position to attract the best contractor talent for those assignments identified as outside of the legislation.

Challenge process

Contractors and agency suppliers must have the opportunity to challenge an assessment, whether inside or outside of IR35.

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

6th of April 2021 and beyond – Business As Usual (BAU)

Businesses should not underestimate the benefits of having a defined, robust and documented process for IR35 assessment.

Engagers prepared to invest in some simple processes and procedures, along with the support of compliant suppliers, can quickly and easily mitigate the risks posed by the new legislation and meet HMRC’s requirements.

As with any other supply chain for products or services, some good due diligence and common sense will allow businesses to carry on with business as usual, utilising contractors effectively and productively.

In contrast to businesses that have changed policies or made blanket statements, engagers will benefit most from the choice of exceptional contract talent available to them due to their fair and credible approach to IR35.

IR35 – Act 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. To learn more about this you can join Workr Compliance and STR Group at 4pm on Wednesday, 5th May for a webinar reviewing the landscape post 6th April and to gain key advice for maintaining BAU in the months ahead. 

If you are unable to make the webinar our specialist team can provide impartial advice and support to help you meet your reasonable care responsibilities. For a free, no-obligation audit and assessment of your IR35 compliance process, you can speak directly with Andy Webster on 07827 810851 or at aw@workrgroup.com.


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People, processes, protection – How to turn IR35 into an opportunity

This article features in the Jan/Feb 2021 issue of Recruiter, and has been reproduced by Workr Group with permission.

With the upcoming changes to the IR35 reforms for the private sector just round the corner, Andrew Webster explains how savvy recruitment agencies can steal a march on their competitors and win new business

Enough has been said about the IR35 Off Payroll Private Sector Reform. Countless predictions and forecasts have been written but none of them change the fact that in a short number of weeks, it will impact all stakeholders in the contracting chain. Whether end client, agency or contractor, this change is likely to hamstring growth and income if nothing is done to navigate the new rules.

However, the changes also bring a huge opportunity. Savvy agencies will not just retain talent that operates through a PSC (and end clients) on their books – they could also win new business. Those with the right knowledge and resources will have a competitive edge over the less-equipped recruiter.

Workr Compliance have developed a three-pronged approach designed to keep agencies profitable and compliant. By prioritising these Ps – People, Processes and Protection – you’ll protect your bottom line, and potentially grow it as well.

People

If you want to navigate the reform successfully, you need to know more about IR35 than what’s changing. You need to understand case law and what IR35 compliance best practice looks like. Not to mention make sure everyone involved in managing your contractor books is clued up on an ongoing basis, as HMRC will likely start enforcing across the supply chain.

Consultants that understand the Off Payroll IR35 Private Sector Reform will be in a much better position to educate clients – and ensure they make the right decision on how best to manage contractors post-April. If you don’t, you risk losing contractor books altogether.

Without knowing why a client is more inclined to bring all contractors under PAYE, you’re unlikely to be able to convince them otherwise.

Nor will you be able to explain to a contractor how you can hope to establish and maintain a compliant IR35 status throughout their chosen career as a contractor or freelancer.

What’s more, it’s imperative that all parties within the contractor supply chain understand and are capable of establishing the status of roles. Without this knowledge, end clients are unable to pass with confidence out of scope roles to their chosen agency – restricting them from quality talent.

As a first priority, Workr Compliance helps agencies and end clients get up to speed. We have a team of IR35 experts to demystify the legislation and genuinely collaborate to meet the responsibilities. Their advice covers everything from the complications of blanket decisions to custom guidance on the nuances of preparing for the changes and enforcement whilst not affecting operational delivery.

Process

You can’t afford a significant upheaval at this stage. Wherever possible you should be attempting to maintain business as usual. In order to do this, your methodology and process of issuing a ‘Status Determination Statement’ needs to be seamless. If not, you risk losing more talent than you bargained for – denting your income.

Unfortunately, time isn’t on your side. Even if it was, manually assessing each and every contractor on your books is taxing and risks a heavy number of inaccuracies. One proposed solution is the HMRC CEST tool. However, the free-to-use software has been heavily criticised for its unreasonably high standards and lack of consideration for mutuality of obligation.

Specifically, most PSCs have had an issue with the fact that HMRC has reversed decisions when disagreeing with CEST assessments.

Thankfully, CEST isn’t the only option on the market. There are a handful of established and proven tools that have been developed by those on the frontline of contracting.

That being said, at Workr Compliance, we believe it’s otherwise impossible to be compliant unless using a blend of intuitive online assessment tools and a consultative approach.

After all, a blended approach ensures you can quickly process status assessments without cutting corners…

Protection

Perhaps the biggest reason why some recruiters haven’t jumped at the opportunity that comes with the IR35 reform is the risk factor. The new rules put the onus of liability on the agency – as the fee payer, the buck rests with you if HMRC did call your status determination assessment into question or, from investigation, prove that ‘reasonable care’ has not been met.

It’s for this reason that agencies should seek a robust solution that comes equipped with the correct insurance for their employment status tax investigations and, possible tax loss. Only then will you have peace of mind when moving forward with contractor recruitment.

Andrew Webster
Founder & Director Workr Compliance


With only weeks to go before IR35 takes effect, can you afford not to utilise the most robust and proven IR35 solution on the market? At Workr Compliance, we apply a genuine understanding of the intermediaries legislation and off-payroll working rules in a commercial context. We’ll collaborate throughout project delivery, assessing the potential impact to each stakeholder in the supply chain of status outcomes. We’ll ensure that compliant and transparent processes are created, implemented and adhered to in order to meet HMRC expectations of reasonable care and, anticipated HMRC enforcement.

We’re committed to giving agencies the upper hand, so apply our expertise to your negotiations today and contact Workr Compliance email, aw@workrgroup.com or mobile 07827 810 851

For more detaills and insights, visit our Workr IR35 Hub.


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