When is a contractor not a contractor? From 6 April 2020, it appears, when the updated IR35 rules come into force and change the framework of contract working in the private sector.
The IR35 changes are aimed at workers who traditionally bill through their own personal service company (or other third-party ‘umbrella’ companies). In many cases, tax payments and National Insurance Contributions will become the responsibility of the end client, for large or medium-sized businesses, and added costs may affect departments throughout the business.
The task of determining a worker’s employment status will also fall on the end client. If handled poorly, this may have significant financial and reputational implications for a company.
IR35 has caused alarm among some businesses, who are now faced with the task of determining the employment status of a significant proportion of their workforce. For the CEO, it’s difficult to get that information, and to work out the impact this will have and the risks to their business.
But gaining central oversight of who is in the business at any one time and preparing in advance will be crucial to avoiding any liabilities.
“It may increase your costs in the short term, but doing a risk assessment of the business around IR35 will allow you to make better-informed decisions,” says Bethan Gill. “It might encourage you to engage contractors in a different way, or you might realise the value of your contractor workforce and decide to absorb the extra cost. Carrying out this assessment before the new rules come into play will enable you to plan for any potential impact.”
The IR35 changes may also have other implications, including a loss of off-payroll talent. Gill explains: “When the rule changes came into the public sector, certain organisations tried to adopt a blanket approach and re-categorise everyone as employed. A lot of IR35 contractors left for the private sector because they didn't want to work in that way.”
Private sector businesses that have learned from the mistakes of counterparts in the public sector are well placed to take advantage of the opportunity IR35 presents. The changes are a chance to examine your workforce and identify whether you have the right skills in your business, for now and the future.
The Grant Thornton International Business Report (IBR) is a survey of mid-market businesses. Launched in 1992, the IBR now provides insight into the views and expectations of more than 10,000 businesses across more than 30 economies. Questionnaires are translated into local languages and fieldwork is undertaken on a biannual basis, through both online and telephone interviews. The data for this release is from interviews conducted in October and November 2019 with chief executive officers, managing directors, chairperson or other senior executives from all industry sectors. More information >>
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