New IR35 legislation is scheduled to be implemented in April 2020 that will amend and extend the existing off-payroll working rules (IR35). Initial estimates from the government predict this will affect circa 20,000 recruitment agencies who provide off-payroll workers via intermediaries such as the public sector, medium and large sized private sector clients and personal service companies.
IR35 legislation of course exists to ensure workers performing similar roles in the same company pay the same rate of tax, whether they are a contractor working ‘off payroll’ or an employee. Currently employers using IR35 covered contractors are obliged to deduct national insurance and income tax as if they were an employee. Under the new amendments, the onus rests on the employing organisation to determine if contractors are covered by the rules, not the individual contractor themselves.
This represents a major challenge for those recruitment agencies acting as a conduit between the end employer and self employed contractors, and creates significant concern with regards to the HMRC.
In short, recruitment agencies must be thorough in their due diligence right across the chain and where possible, seek accreditation from a reputable entity such as the Contractor Services Association.
Although some within the sector are pushing for a delay in implementing these changes until 2021, thus far Chancellor Sajid Javid is yet to sanction any such postponement. There is a strong feeling within the industry that the proposed April launch date won’t give recruitment agencies sufficient time to properly understand the legislation or plan for the implications the changes will bring. There are also concerns around the proper regulation of the legislation and the risk that poses for non-compliant businesses failing to pay the correct taxes.
Some recruitment agencies have even spoken of work being taken abroad, thus damaging overall growth within the sector. High profile names such as IBM, GlaxoSmithKline and Barclays Bank are already reportedly phasing out their use of PSC’s in response. Even more alarmingly, a survey conducted by Be Digital UK found that 4 out of 10 businesses are considering phasing out contractors when the new legislation comes into place on April 6th.
Whilst you no doubt will already have made steps to ensure your agency is as compliant as possible and able to manage the administration element, The Business Board is able to provide additional support options with funding and/or payroll, in particular if you are required to account for and report any tax and NIC due under PAYE.
If you would like to talk to us about your own finance options or exit strategy, email us at: info@thebusinessboard.co.uk or call our office on 0118 338 1818.
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