IR35: the art of applying new off-payroll working rules

Michelle Perry Michelle Perry

April 2021 may seem a long way off, but if you’re running a large or medium-sized business affected by new off-payroll working rules announced in last year's Autumn Budget, you’ll need all the time available to make sure you’re ready.

Applying off-payroll working rules (commonly known as IR35) is far from straightforward. Since they were amended to include the public sector in April 2017, our experience supporting these organisations means we know just how much work is involved for you to review your current practices, take action and communicate with the people involved.

What are the new rules?

Introduced in 2000, IR35 requires individuals who work like employees but contract via another company to pay similar taxes to other employees. 

From April 2021, large and medium-sized businesses in the private sector will need to decide whether the rules apply to their engagement with individuals who work through their own personal service company or other third party.

A key issue, which muddies the water significantly, is that there is no statutory definition for determining whether an individual is an employee or self-employed, and no formal definition of a personal service company (PSC), either in tax legislation or provided by HMRC.

Draft legislation was published on 11 July 2019 that includes details on the process businesses will need to put in place for providing 'status determination statements' to workers and on the dispute resolution process.

Who needs to take action?

There’s no doubt that these new rules have far-reaching implications for thousands of organisations, particularly those operating in the construction and IT sectors. For many businesses the engagement of contractors is increasingly common as a flexible way to manage their workforce.

And it’s not just an issue for HR. If your organisation is affected you will need to bring together a multi-disciplinary team comprising senior managers or directors from HR, finance, procurement and legal to work closely together to minimise potential commercial and reputational risk as well as ensure future compliance.

What do you need to consider right now?

  • Bring together your multi-disciplinary team for an initial meeting to review and assess your current contracted workers position. It may sound odd, but some businesses - particularly those using agencies or other third parties - may not be aware of the employment status of their contractors
  • Conduct an in-depth 'IR35 Readiness Check' that will examine factors including a review of all your contractors, establishing their employment status; identifying your “at risk” population; assigning responsibilities to members of your multi-disciplinary team; updating on-boarding and procurement systems and calculating the costs of alternative engagement methods
  • Possibly implement a separate payroll to manage your contractor population.

How can we help?

We have developed a five step plan to assist businesses in not only preparing for the legislative change but establishing a system to manage the on-going requirements.

We can help with everything from preparing IR35 readiness checks, financial modelling, supporting transition arrangements and staff training, right through to preparing and submitting statutory returns.

Our Employment status tool uses artificial intelligence to assess and monitor your contractors, and can be used as an alternative to HMRC's CEST (Check Employment Status for Tax) tool.

Having argued several cases with HMRC, we are up to date on all the relevant case law as well as current HMRC thinking, resulting in a database of knowledge that can benefit organisations navigating their way through this minefield.

Get in touch with Michelle Perry or your local employment tax expert to discuss how we can help.

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Our tools Providing you with the data and insight you need to comply with IR35 Identify, assess and monitor your contractors