From 6th April 2021, the scope of the Off-Payroll Working Rules (IR35) will be expanded to cover medium and large private sector organisations, employment agencies and third parties within the labour supply chain.
The hiring business or end-user will be responsible for determining the tax status of any contractors engaged through an intermediary.
Where the contractor is deemed to be employed for tax purposes, HMRC will seek recovery of tax and NI from the fee payer in the first instance - that is, from the entity that pays the intermediary.
Liability can pass up the chain to the hiring business or end-user if the fee payer does not meet its obligations.
Workers are entitled to certain employment rights, including:
The national minimum wage.
Paid holiday.
Statutory rest breaks.
Protection against discrimination.
Protection for whistleblowing.
Auto-enrolment into a pension scheme.
Should contractors 'fail' the IR35 test, HR departments will need to ensure workers receive their statutory entitlements, including back-dated holiday pay, national minimum wage, Section 1 statements setting out minimum statutory information and conduct right to work checks.
What should you do now?
Audit your workforce and review labour supply chains.
Identify your contractors and how you engage them. Do you engage them directly, through a personal service company or umbrella?
Speak to those who will be caught by IR35 to agree an approach.
Assess the impact of the new regime and budget appropriately.
Decide who is responsible for carrying out employment status determination statements.
Decide who will manage your relationships with contractors.
Decide whether you need to change your working practices and arrangements.
Decide whether you need to renegotiate or terminate engagements
Implement any changes.
Begin to advertise roles as inside or outside IR35.
Many individuals will not want to be deemed as employees for tax purposes. Whilst the final decision rests with the hiring business or end-user client, a determination of worker status may mean contractors leave or refuse to take on work.