Take IR35 on With Confidence
As of April 6 2021, HMRC’s proposed IR35 reform will be enforced in both the public and private sector, leaving businesses, recruitment agencies and contractors with less than seven months to prepare. Despite the noise surrounding the reform, many companies still feel underinformed and unprepared, with four out of ten firms considering blanket bans on outside IR35 roles for fear of getting it wrong.
Ultimately, the hiring firm holds the responsibility to determine a correct IR35 status. However, agencies will play a crucial role in negotiations and communicating expectations between the hirer and the contactor. Agencies will need to have an understanding of general IR35 terminology and processes to assist both parties in reaching a mutual agreement. It should also be noted that with the inclusion of the debt transfer provision, agencies could also find themselves at risk of tax fraud if they are found to be administering payroll incorrectly, whether it be purposely or not. By outsourcing payroll and HR responsibilities to a contractor compliant management company, recruitment agencies can reduce their liability risk dramatically and receive support and guidance from experts in the tax and payroll field. Here are three ways Generate can help your agency take on IR35 with confidence.
Expert Guidance & Support
At Generate, we live and breathe payroll, HR, tax law and compliance – it is our bread and butter. Our team will help guide your consultants through the complex processes and terminology that IR35 presents, as well as guide your contractors through payroll options, legislative requirements, and tax advice. Inevitably, the new rules will result in many contractors being newly taxed as employees, either under the deemed payment rules or directly as an employee. This will need sensitive handling, a clear explanation of the new rules and an outline of any take-home pay impacts, as well as the potential benefits of moving to a fully employed solution. Having helped several agencies through the 2017 public sector reforms, Generate is ideally placed to offer guidance and support throughout the transition period.
Robust Balance Sheet
The debt transfer provision allows HMRC to recover unpaid tax liability through the supply-chain. Meaning agencies who knowingly or unknowingly use non-compliant payroll providers could end up footing the bill for their supplier’s wrongdoing. With liabilities potentially exceeding 60% of the contractor’s gross rate. This risk to agencies and end-clients brings sharply into focus the need for a compliant and transparent supply chain. The best way to maintain a complaint chain is to opt for companies who have a long and strong financial history and, when choosing payroll providers, opting for ones that are audited by an independent body such as the FCSA.
“The IR35 debt transfer rules create potentially business-critical liabilities for any agency that does not have a compliant supply chain. Agencies should ensure they are working only with FCSA Accredited Members that have an established trading history and a strong balance sheet” – Robbie Smith, Finance Director, Generate
Currently, Generate is one of the few contractor management companies offering a PEO model. PEO offers Joint Employment as an extension of the Fixed PAYE Rate model. Both the agency and Generate act as the employer and share employment duties. Responsibilities of each partner are agreed in a separate framework agreement. A typically appointed duties agreement allocates recruitment, right-to-work checks and payment rates to the agency and HR and payroll to the contractor management (Umbrella) company. Though not yet common practice in the UK, the PEO model is recognised by HMRC and is gradually increasing in popularity as an alternative to Umbrella.
How Does PEO Benefit Your Contractors?
- An extra layer of employment security through joint employment
- Fixed and transparent PAYE rates
- Simplified employment chain
- Retain the flexibility of contract work, while maintaining the benefits of continued employment
- FREE CPD courses
- Access to thousands of high-street and online retailer discounts and offers
How Does PEO Benefit Recruitment Agencies?
- Salary cost transfers between joint employers are not subject to VAT, reducing cash flow requirements and finance costs
- Minimise the risk of non-compliance
- Reduce administrative contractor care, HR, and payroll tasks and internal headcount
- Gain access to industry experts and receive personalised advice on employee HR and payroll legislation and regulations