February 11, 2020

5 Step IR35 Survival Guide

With the April 1st deadline fast approaching check out our guide to a smooth IR35 transition and how to minimise it’s impact on your organisation if you use contractors.

Please feel free to reach out if you have any further questions on this topic or if you want to know more about how Residency can partner your project delivery outside of IR35.

Background

Although IR35 has been applicable to the public sector for a while, from 1st April 1st 2020 this legislation will be extended to the private sector also. IR35 is intended to prevent contractors from working for organisations as “disguised employees” for tax purposes. The new rules see responsibility for compliance shift from one end of the supply chain to the other. Liability will no longer sit with the individual contractor but move to the end user potentially having a significant impact financially in the event of non-compliance. So what does this all mean for your business and what can you do to minimise the disruption to your organisations and its project delivery whilst keeping compliant?

Here is our 5 step guide to a smooth and worry free transition:

Step 1 – Establish if your business is affected

Establish if your business will even be affected by the new legislation in the first place! If your business meets the following criteria you will be exempt from the new legislation and need take no further action:

Annual turnover under £10.2m

Balance sheet total not more than £5.1m

 Fewer than 50 employees·  

          

Step 2 – Assess your current contingent workforce and their roles

You need to evaluate your current contract workforce and commence a dialogue with them about the pending changes and how this could impact both sides. There isn’t a cut and dry definition of what constitutes inside or outside IR35 but asking certain questions can build a picture and provide an indication if your organisation is at risk.

 Some of the questions you need to be asking:

1.     What is the contractor working on and do they have a Statement of Work and clear set of deliverables or are they working on a time and materials basis?

2.     How long will they be required for? How long have they been in this role already?

3.     Are they working as if they were an employee – do they use in-house laptops? Do they have security access in the same way and to the same level of your permanent employees? (just a few examples but ask other questions like these. The overall thread here is are they treated just like an employee in your organisation)

4.     Can they be substituted by another employee from their own business i.e if they were unavailable could a colleague of theirs step in?

5.     Do they have other premises and offices to work from?

Step 3 – Use the official HMRC assessment tool

Run the role(s) through the official HMRC tool. This will provide an additional guide to whether roles are likely to fall inside or outside IR35 but again this is not definitive.

Step 4 – Look at the options

For roles suggested as falling inside IR35 you now need to assess what route to take to ensure both compliance and an uninterrupted project delivery. The main options are:

Option 1 – Contractors will continue to work “as is” and within IR35 but pay tax as required by HMRC. This is likely to mean that you will need to increase their rates between 25% and 40% and this will need to be incorporated in to your cost expenditure plans and project costs.

Option 2 – Convert the contractor to a permanent employee. This can be a good solution if it suits both the employer and contractor goals. This is not a good solution however if the skillset required is only temporary and can be expensive if the FTE was not originally planned or if the contractor wishes to continue operating as a limited company.

Option 3 – B2B Service Delivery Model – A good risk free and win-win solution. The contractor is deployed via a project delivery partner model. This requires a Statement of Works (SoW) and clear set of project deliverables which can be established at the commencement of deployment. This removes the liability from the end user i.e. your organisation and places this with service provider. The contractor continues to operate as a limited company and the end user still retains the expertise and skills of the contingent workforce.

Step 5 – Communicate your strategy and implement

Now that you have your strategy in place, it’s time to act and communicate to your key stakeholders and contractors. This is the time to update contracts and agree a clear outcomes-based set of deliverables for any contractors you are continuing to engage.

Summary

Whatever route you choose for your organisation, you need to take action now and start the dialogue with contractors in readiness for the IR35 April 1st 2020 deadline. If you feel that a B2B service delivery model will suit your organisation, reach out to us at Residency and we’ll see how we can help with not just IR35, but your longer-term project delivery requirements.

Best regards

Annette and the Residency Delivery Team

More Information

Residency is an innovative project delivery partner offering technical community-based capabilities delivered to client requirements via a flexible and configurable virtual bench delivery model outside IR35. For further information:

Email: annette.banks@satigo.com

Call: 0207 256 3217