IR35 Webinar: Navigating the Changes (February 13, 2020)

On Thursday 13th February 2020, Sonovate held a webinar with legal experts Osborne Clark to discuss how to navigate IR35 and retain access to your contractors.

Topics covered included:

  • What the changes mean for your business
  • How to prepare for April 6th
  • How Sonovate’s range of IR35 solutions will support your business growth

Transcript

Richard Prime

Good morning, everyone. Thanks for joining today’s discussion on how to navigate IR35 and retain access to your contractors.

Today we’ll cover:

  • IR35 overview
  • What is changing in April
  • Tips on how to prepare
  • Sonovate’s IR35 solutions
  • Q&A

Kevin Barrow (Osborne Clarke)

What I’m going to do is put IR35 reforms into context. To understand how they work and how major clients are thinking about them, you need to understand the full context of what’s happening with contingent workers.

There’s been growing government action against contracting globally. The UK is actually late to implement major legislative steps against self-employment models compared to other countries.

Current Liability Position

Currently in the private sector, the personal service company is liable for any tax if they’re inside IR35 but have been paid outside IR35. This will change in April.

HMRC has announced they’re investigating major suppliers under the Criminal Finance Act for turning a blind eye to dodgy umbrella arrangements.

What is Changing?

The IR35 reforms trialed in the public sector will move to the private sector. HMRC believes this worked in the public sector (though evidence suggests otherwise).

Key changes:

  • The fee payer (usually the staffing company) becomes primarily liable
  • End users can be liable if they don’t follow proper processes
  • HMRC can pursue end users if they can’t recover tax from fee payers

How is the Market Responding?

Some major organizations have issued blanket assessments of inside IR35 or prohibitions of personal service companies. However:

  • This has worked for lower-skilled roles where workers have little choice
  • For highly skilled workers, some end users are secretly allowing outside assessments
  • Some public sector organizations initially took blanket positions but had to backtrack

From starting with a blanket inside assessment, some organizations have now changed their tune when faced with losing key contractors.

Alternative Models

Options include:

  1. PAYE models – Essential to have this option available
  2. Statement of Work (SOW) models – Must be genuine output-based contracts
  3. Umbrella companies – But beware of aggressive schemes

Warning about SOW models: They require completely different contracts where you take responsibility for outputs. You must:

  • Have proper insurance
  • Accept not being paid if deliverables aren’t met
  • Back-to-back this with contractors
  • Properly scope projects upfront

Top Tips

  • Communicate with end users about potential cost increases from blanket bans
  • Terminate and reissue contracts before April 6th
  • Prepare for contractor dissatisfaction
  • Educate contractors about avoiding dodgy umbrella schemes
  • Ensure your PAYE option is ready
  • For outside assessments, verify end users’ processes are sound

Sonovate’s solutions to support:

  • Inside IR35: Full PAYE calculation and deduction management
  • Umbrellas: Continued support for time & materials umbrellas
  • Outside IR35: Support for genuine SOW with careful assessment

Our services include:

  • 100% advance funding on temporary assignments
  • Online timesheets and invoicing
  • Payroll for inside/outside IR35 including all tax calculations
  • Assistance setting up PAYE schemes

Q&A

If a UK contractor works for a non-UK client, does IR35 apply?

Yes. If the intermediary is in the UK, the intermediary will be liable.

Does a Statement of Work model solve the problem?

Yes, but it must be genuine. HMRC’s guidance makes clear that just relabeling contracts won’t work.

Do all payments to non-compliant contractors need to be made before April 6th?

No. The new regime only applies to services performed on or after April 6th.

Do contracts need to be revised?

Yes – for both clients and contractors. Inside IR35 contracts need right to make deductions; outside contracts need to remove any suggestion of control.

What about employment claims by contractors deemed inside?

While possible, contractors bringing such claims risk exposing their own pre-April tax positions to HMRC.

How do I prepare to run PAYE placements?

Register for a PAYE scheme (Sonovate can assist) and determine what benefits you’ll offer (pension, holiday pay etc.).

What does Sonovate need for a Statement of Work placement?

We’ll require your terms, the SOW, and the Status Determination Statement to verify it’s a genuine outside IR35 arrangement.

How will this affect the contract market?

Expect turbulence initially as positions are established, but the market will adapt with opportunities remaining for both inside and outside IR35 workers.

How do I calculate PAYE deductions?

Consult a specialist. Sonovate offers a calculator to help determine appropriate margins and charges.