The contracting industry has been adjusting to IR35 reform since April 2021, and as those adjustments take effect the commercial landscape will inevitably change. Recruiters who can guide their contractors and clients effectively could find they have a real competitive advantage.
How did IR35 change in April 2021?
The responsibility for determining whether contractors are inside IR35, and “employed for tax purposes” or outside IR35 and “in business on their own account” has been passed from the contractor themselves to the end client.
Many end clients are concerned about their new responsibilities and the associated risks and costs, and a surprisingly large number have still not implemented the changes required by the legislation. If you have clients who are not assessing IR35 correctly they will need urgent help to rectify the situation and mitigate the risk.
Your clients’ responsibilities
Your clients must now determine the IR35 status of any contractors they engage. Status determinations are complex, and this is causing widespread difficulty, but it’s vitally important that it’s done correctly.
Where they decide the contractor is outside IR35:
Provided the contractor is genuinely outside IR35, this is the ideal outcome. Business continues as usual, and you can safely pay the contractor’s limited company (PSC) without deducting PAYE tax and NICs.
However, you as the “fee payer” are now liable for unpaid tax and NICs if the decision is incorrect. For this reason, it’s important to ensure that your clients have a robust and insurable process for determining IR35 status.
Where they decide the contractor is inside IR35:
In this case, PAYE tax and NICs must be deducted before payment is made to the contractor’s PSC, and employers NICs are due as well. Our experience is that most contractors in this position will switch to a PAYE solution, like umbrella employment, as this is better for them than trading through their PSC.
If the contractor is newly inside, they will see a significant drop in their take home pay. Those with the power to bargain may negotiate an uplift to their rate, or move to alternative contracts where they can work outside IR35.
Those who end up working for lower pay will obviously be unhappy about it. This means that inside IR35 decisions are likely to cause either increased costs, lost resource or morale issues for you and your clients to manage.
Where is the opportunity for recruiters?
Every client who doesn’t class as a small private company now has to deal with these issues, so a recruiter who can offer a solution will become indispensable to existing clients and will have a very good chance of winning new business.
By partnering with Orange Genie Compliance, you can:
Provide a convenient and reliable assessment tool. Our IR35 assessment tool will help your clients efficiently and accurately assess IR35 status. It’s fast, completely virtual and backed by insurance, so it solves a number of practical problems.
Help assess their position. Our experts can help your clients assess their workforce so resourcing risks and increased costs can be mitigated and planned for.
Help them adapt. Our experts may be able to help your clients amend contracts and working practices so more contractors fall outside IR35.
How does this affect your contractors?
Your contractors’ main concern is that they will be incorrectly forced to pay PAYE tax and NICs, either because the client made a blanket “inside” decision, or because they refuse to engage with PSCs. We know that some end clients have done this, though it’s becoming less common as the consequences in terms of recruitment, retention and costs become apparent.
Contractors are looking for clarity about their position and reassurance that they’ll be treated fairly, and they’ll choose recruiters who can offer them these things.
Where is the opportunity for recruiters?
In an environment where contractors are voting with their feet, the trick is to make sure they’re walking towards you, rather than your competitors.
By taking action now, demonstrating a deep understanding of the issue and providing good quality, reliable advice, you can become the recruiter of choice for contractors in your sector. By working with Orange Genie Compliance, you can:
Educate agency staff: We’ll organise training where necessary to ensure your contractors’ questions and concerns are answered in a way that gives them confidence in you.
Educate your clients: We’ll work with your clients to ensure they can assess IR35 correctly, and where possible help them change contracts and practices so more of your contractors fall outside IR35.
Provide sound advice: Contractors who find themselves working inside IR35 will need expert help to navigate their new working options. Working with Orange Genie will give them easy access to the full range of compliant solutions, and impartial advice about which is better for them.