From next year, UK businesses engaging contractors and freelancers working through their own limited company will become responsible for deciding their tax status. As part of this reform, the tax liability will also transfer from the contractor to the fee-paying party in the supply chain, which is typically the recruiter or the end client. A survey of the trade association’s membership revealed that 61% of professional recruitment firms think that the businesses they work with are unaware of the changes. In addition, just 12% said the majority of their clients are actively preparing for the updated legislation. This suggests that many businesses are unaware of the wider potential consequences of the IR35 reform.
Following changes to off-payroll working in the public sector, 45% of professional recruitment companies saw around a 15% increase in the cost of hiring contractors who work through their own limited company. There have also been a number of serious issues that have resulted in a difficult period of adjustment. In fact, many people would argue that these issues remain largely unresolved.
Although the draft legislation has been released, many companies are still hoping for more guidance on how to proceed. While some big name businesses have stated their intention not to use contractors working through their own limited company, this knee jerk reaction might place them at a considerable commercial disadvantage. Neither can businesses afford to take a blanket approach, as private sector contractors working at a high level will simply find clients that can accommodate them and their limited company.
Sajid Javid is expected to reveal the final hand in November’s budget, when HMRC will detail what the implementation of IR35 reform is going to look like in the private sector. The problem is, the longer that businesses leave their preparation, the bigger the administrative burden and learning curve they’ll have to deal with. Regardless of the finer details, companies need to put in place a strategy for dealing with the IR35 reform as soon as possible.
If they haven’t already done so, companies should review their existing contingent workforces to determine what employment models individuals are working through. This will give them a good idea of their limited company contractor usage. Businesses must then determine what in-house skills they require on a permanent basis, and where in the operation they need to use flexible labour according to market demand.
Reviewing the working practises of their contingent workforce will help businesses understand the supply chain and where the potential tax risks lie. In collaboration with their recruitment partners, they can identify which skills are likely to be in demand and make provisions for securing them. Finally, companies must also communicate with contractors about the details of their contract so that neither party are compromised.
What’s certain is that the ‘wait and see’ approach won’t give businesses enough time to prepare for next April’s changes. Companies who have taken a considered approach and prepared accordingly are likely to be at a commercial advantage when it comes to securing the most sought after talent. There is still a question mark over whether or not November’s budget will deliver a definitive answer. Calls to suspend further reforms while reviews take place have not be heeded: IR35 in the private sector is happening, and companies need to act now.
To find out how Umbrella Exchange can help you prepare for the off payroll changes ahead, speak to a member of our team on: 0203 393 3881
