IR35 review – A checklist for agencies

IR35 Update – what’s changing

From April 2020, following changes to the public sector in 2017, with the exemption of small companies, the government will be extending the off payroll working rules (“IR35”) to companies in the private sector. This will significantly impact the way some clients and agencies engage temporary workers.

The key change is that the responsibility of defining the IR35 status will transfer from contractors operating their own personal service companies (“PSCs”) to the end-user client. Clients will now be required to individually assess each role as being “inside IR35” or “outside IR35” by issuing a Status Determination Statement (“SDS”). This then has to be cascaded down the supply chain to the fee payer (generally the recruitment agency) and the contractor. If they fail to make this assessment they risk being in breach of “reasonable care” imposed by the new rules.

Agencies will bear the brunt of the liability in the supply chain for an incorrect determination, even for an “outside IR35” assessment by the client, which HMRC subsequently decides to be incorrect. However, liability can transfer back to the client. This can happen if it:

  1. doesn’t comply with the SDS process or
  2. doesn’t notify the supply chain of a change in its status to a small entity or
  3. HMRC is unable to collect tax from the fee payer or “Agency 1” (often an RPO or MSP).

Agencies will need to urgently look at how IR35 legislation is best integrated into the procurement of their contingent staff. Only by doing this can they limit the risk of non-compliance. We would advise assembling a steering group to ensure everyone considers and understands the following:

How WTT can assist

Employment and tax law is complicated, particularly where it relates to flexible workers. Clients are looking to their agencies to keep them compliant – especially as many of them do not have an adequate understanding of the new rules to meet the “reasonable care” threshold set by HMRC.

In many instances, agencies will have a contractual obligation, including onerous indemnities, to ensure that workers they provide are compliant and do not expose the client to risk.

As an agency, you may not have the necessary understanding of IR35 and the employment tests behind it, to provide confident advice to your clients. This is where we can help.

We are experienced in implementing solutions for contractors, agencies and clients. As we are not associated with an insurance provider, we are impartial. In addition to helping you prepare, we also offer an IR35 helpline to assist with on-going support post-implementation.

To find out how we can assist, email info@WTTLegal.co.uk to arrange a free consultation.