IR35 and third party agencies

IR35
legislation aims to ensure workers undertaking similar roles in the
same organisation pay the same tax, regardless of whether they are an
employee or a contractor working ‘off payroll’, and employers or
recruiters using contractors who are covered by IR35 are required to
deduct income tax and national insurance from their pay as if they were
an employee.

Under the reforms – which have been in place in the
public sector since 2017 – the responsibility of deducing whether
contractors are covered by the rules moves from the individual
contractor to the employing organisation or the recruitment firm placing
the contractors.

Matt Fryer, head of legal services at Brookson
Group, said there was nothing significantly new in the latest draft of
the legislation, but added that the clarification over who was liable
for unpaid taxes was welcome.

He
said the “debt transfer” rules were likely added to dissuade
organisations from using any of the non-compliant recruitment firms that
have entered the market since 2017.

“The practical implication of
these provisions is that end hirers and agencies need to be extremely
careful with the payment intermediaries – umbrella companies, fee payer
service providers, etc – they engage with,” Fryer said.

“HR teams
and recruiters alike must conduct due diligence on their entire supply
chain, ensuring compliance with the new off-payroll rules and looking
for accreditation by a reputable entity such as the Freelancer and
Contractor Services Association.”

Susan Ball, employer solutions
partner at RSM, said the draft showed the government was “pressing
ahead” with the planned changes despite the opposition.

Ball said:
“While there may be a very short window for minor changes resulting
from the review to be included in the tabled final legislation,
businesses and contractors need to carry on with their preparations with
the expectation that the majority of the provisions contained in
today’s draft and the primary legislation issued in July 2019 will reach
the statute book.”

The latest draft of the changes to the private sector IR35 off-payroll rules comes a few days after some of the UK’s largest recruiters wrote to the chancellor calling for a delay to the rollout of the changes.

The letter, signed by Reed, Hays and ManpowerGroup, among others, highlighted that a lack of proper regulation would mean non-compliant recruiters that failed to pay the correct taxes would “thrive” under the new rules.

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