When the anti-avoidance tax legislative reform – IR35 - rolls out to the private sector in April, employers of many contractors could be in a very difficult position.
If you’ve been using contractors on a long-term rolling basis and directing and managing their work and output, they will be viewed as in scope of the revised rules.
Essentially the legislation refers to those people resources who are being treated in a similar way to your permanent staff, but with the option to terminate their contract at short notice. And although they often operate and engage their services via a limited company, this does not exempt employers from the penalty and risks post 6th April 2021.
The purpose of this legislative change? To target tax avoidance through ‘disguised employees’: supposedly self-employed workers who currently place themselves under the contingent worker classification but are effectively treated as permanent staff. These contractors may currently be registering their salary as business dividends, to avoid both income tax and National Insurance contributions.
From 6th April 2021, it will be the responsibility of end hirers and employment agencies to ensure that these workers are correctly categorised and paying relevant tax. In turn, this means that the engaging companies will be held liable should the HMRC decide that the status is incorrectly assessed - and those benefitting from effectively permanent employment are classed as such. This will impact on every business with more than 50 employees, £10.2 million in annual turnover, or £5.1 million on the balance sheet.
If you have a large number of contractors, who may sit on the edge of some of these boundaries, it’s quite an undertaking to ensure you’re staying on the right side of the legislation. And when that resource starts having tax and national insurance contributions (both employee and employer) deducted at source, you may find yourself in challenging negotiations as they try to recoup these costs by increasing their pay rate. We’ve seen the increase in day rates range from 13-38% to cover the difference.
The consequences of getting this wrong are not going to be insignificant, whether it’s a fine from HMRC or your contractors holding a pay rise over your head at a time when you may need them the most. As a result you need options that allow you to continue to reap the rewards of a highly flexible workforce that you can utilise over an extended period, without the ramifications of permanent employment or falling into IR35.
An Employed Resource Model (ERM) is the ideal answer to these needs. Bridging the gap between the two types of workers, you can draw from a talent pool of resources who are maintained as members of permanent staff by the supplier.
For example, in the case of the ERM people resources we offer at Capita, we take responsibility for their pay, bonus, training and development, whilst you maintain the direction and control of the work and tasks they complete. With a performance and pastoral wraparound service, we ensure they deliver to your objectives and milestones, and are part of a practice and community outside of your organisation to ensure continued self-development and mentorship.
Our live, deployed bench numbers are over 300 resources, with a pool of over 1,000 pre-vetted, skilled consultants ranging from entry to board level talent, available for short and long term deployment.
This flexible workforce allows organisations to ramp up and down their resource as the business requires, handing them back when work has been completed, or extending them on an ongoing basis, safe in the knowledge that there’s no IR35 determination required, and there are no co-employment risks or agency worker regulations to concern you. Furthermore, with potential savings of 10-15% compared to the contingent market, and the option to transfer resources to your permanent headcount at any point in the future, you benefit from a a risk-free, compliant route to a flexible workforce even in the face of the new legislation.
