On April 6 changes to IR35 legislation came into effect for the private sector, making businesses responsible for determining the tax status of their contractors and ensuring compliance. This date does not mark the end of the journey, however, it’s just the beginning. Many will have rushed to get a IR35 solution in place ahead of the deadline, with corners cut and mistakes made, while others will only now be looking at adopting a solution. Whether you’ve made a quick fix or thoroughly prepared, now is the time to review your IR35 solution and look at how to incorporate it into business-as-usual.
So, let’s explore the next steps on the IR35 journey.
It’s Not Too Late for an Effective Solution
For businesses that have not yet implemented a solution, now is the time to act. By seeking expert advice, effective IR35 processes can be implemented which will help prevent skills shortages and compliance issues further down the line as well as a surprise tax bill and HMRC fines.
Some businesses will have implemented a rash IR35 solution to get something in place ahead of the deadline. In doing so, it is likely that corners have been cut, such as making status determinations using online automated tools, ineffective use of “statements of work” in attempt to transfer risk, or even asking contractors to submit their own IR35 assessments. However, many of these quick fixes leave the real potential of hidden tax risk in the supply chain that could be discovered at a later date. While HMRC will waive financial penalties during the first 12 months, where there are genuine mistakes with the legislation, they will still be looking to recoup any tax revenue due and penalties will be imposed at a later date.
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Added to this, many organizations introduced blanket bans on the use of contractors, but with the pandemic recovery on the horizon and a flexible workforce key to meeting increased business demand, this is not a sustainable position to take. A blanket ban would effectively see these businesses missing out on 60% to 70% of the contractor talent pool that would otherwise fall outside of IR35 in a status determination.
Now is the time for businesses to take a step back and evaluate whether their IR35 solution is truly fit for purpose. It’s not too late to implement an effective policy that ensures compliance and access to the best available talent.
Business as Usual
For those businesses with a robust IR35 policy in place, the next milestone on the IR35 journey is embedding this completely new approach to contingent workforce management into business as usual. This means that new processes will need to be incorporated throughout the organization to provide continuity and highlight an ongoing demonstration of reasonable care with the new IR35 rules. For example, to avoid any unexpected tax bills or HMRC fines it’s also vital to maintain visibility of the temporary workforce and the potential risk throughout the entire supply chain on an ongoing basis as well as regularly reviewing the status determinations that were put in place for April 6.
The IR35 deadline may have passed but the journey is still very much in its early stages, with the real changes to business as usual and contingent workforce management now beginning. Regardless of how far down the road your business is, it’s not too late to seek expert support and guidance to implement an effective IR35 policy and process. By re-evaluating existing approaches and fixing any mistakes now, businesses can be compliant and have access to a flexible workforce to support business growth.