For any agencies supplying limited company contractors, it has never been more important to consider IR35, otherwise known as the intermediaries legislation, and ensure that all workers are being engaged on the correct terms and conditions which reflect how their services will be provided to the client.
The reform to IR35 within the public sector meant that agencies supplying contractors to the public sector have since been financially liable for the tax status if, after an enquiry, HMRC considers that the agency did not pay the contractor correctly.
The more recent reform to IR35 within the private sector, and the implementation of the new off-payroll working rules, has resulted in a step change of responsibilities for all within the supply chain. With contractors working for medium-large end clients now no longer responsible or liable for their IR35 status, these roles have been placed with other parties within the chain.
Because of this, contractors now look to work with agencies who are more sympathetic and amenable to making considerations concerning IR35, and legal disputes concerning contractual terms can also be avoided where all parties are in agreement to all of the terms surrounding an engagement.
The ‘Intermediaries Legislation’, commonly known as IR35, was introduced in April 2000. The legislation is intended to tackle the perceived tax abuse by an individual who would be treated as an employee of their client, were it not for their personal service company (PSC) acting as an intermediary. Working in this manner enables an individual to make substantial tax and NI savings.
During an IR35 enquiry, if HMRC decide that an engagement is ‘caught’ by IR35, they will calculate a deemed payment, treating all income received as salary and demanding all tax and national insurance contributions on payments originally paid out as dividends. New rules concerning Travel and Subsistence were introduced from 06 April 2016 and additionally mean that for any contractors determined by HMRC to fall inside of IR35 following an enquiry, any travel and subsistence expenses claimed for ordinary commuting will not be allowable.
When placing contractors operating via their own limited company, otherwise known as a personal service company (PSC), IR35 will likely become a topic of conversation.
If you are actively placing contractors with medium-large end clients or public sector bodies, you will likely be highly involved in the IR35 determination of those contractors - please click here for more information.
Before taking on a role, most contractors will want to take independent due diligence of the contractual terms in relation to IR35. To do this may take a few days depending on the service, and should any amendments be suggested in the review, the contractor will likely wish to have these changed.
As a recruiter, you can help by mediating any changes with the legal team where required. It is also important to note that the upper level contract (i.e. the contract between your agency and the end client) can have a decisive impact on a contractor's IR35 status. Any discrepancies between this contract and that between the agency and contractor, can cause the contractor to lose an investigation into their accounts. There should therefore be no discrepancies between the contracts - this can also assist with any contractual disputes where terms differ between the contracts, such as notice periods.
By having a general understanding and appreciation for the difficulties associated with the IR35 legislation, you can build a better rapport with the contractors you place, therefore developing a pool of dedicated contractors for your end clients. We have a wealth of IR35 guidance on the website if you would like to learn more.