Since April 2021 most end clients have been responsible for determining the IR35 status of any contractors they engage. As this decision has a marked affect on your contractors' take home pay it can create recruitment and retention problems if the answer is not what they want or expect. In this article we'll look at how you can advise your clients to help them overcome this issue.
What's causing the problem?
The main issue is that in order to determine IR35 status, the end client will have to spend money and allocate resources. Immediately following the reform many end clients decided against this, and instead made blanket decisions to force all contractors inside IR35, or made internal policy decisions to stop working with PSCs.
This meant that many contractors who were genuinely outside IR35 were forced to use a PAYE solution, which left them paying more tax than they needed to.
Why is this bad for your clients?
On the surface, this might seem like the ideal solution for the client as it allows them to avoid the additional work, risk and cost associated with assessing IR35 status. However, this approach has some negative consequences for the client as well, as many have seen in the period since April 2021.
Contractors cost more
Where contractors are working inside IR35, employers National Insurance is due on payments made to them. This means contractors cost more if they’re inside IR35. Insisting that all contractors work as if they’re inside means unnecessarily increasing costs.
The best contractors will go elsewhere
Contractors working inside IR35 take home less money unless the pay rate is uplifted to compensate. Many contractors also prefer working through their PSC for a number of other reasons. Clients who fail to assess IR35 correctly, or refuse to work with PSCs, can expect those contractors who have a choice to go elsewhere.
What can your clients do about it?
The best advice to your clients is to assess IR35 correctly, and adapt their internal policies and working practices to make it more likely that contractors will fall outside IR35. This will make them more attractive to contractors, many of whom are actively seeking contracts that allow them to work outside IR35.
Assessing IR35 status correctly
This means assessing each contractor’s IR35 status individually, taking into account their specific circumstances and working practices as well as the written contract.
Adapting working practices
Where contractors do fall inside IR35, it’s often at least partly due to the way the client works. By assessing their working practices through the lens of IR35 compliance, clients can adjust their internal policies and practices to make it easier for contractors to fall outside IR35.
Most clients will need help with this
Most clients will need specialist help to assess IR35 correctly. The best course is to involve IR35 compliance experts like Orange Genie Compliance, who can:
Assess their particular situation, including the size and make up of their contingent workforce, the contractual arrangements in the supply chain and the working practices in place.
Make bespoke recommendations based on their findings.
Help the client to implement the necessary processes to minimise risk and cost, while ensuring continued supply.