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As an end-client or recruitment agency, what do I need to do?
We understand that it may be confusing preparing for IR35, so we've put together some points below that will help you to prepare.
1. Check whether the rules apply to you
The new rules will apply to medium and large companies (the same criteria for non-corporate entities).
Any company which meets two or more of the following criteria in the current tax year, will be within the scope of the new rules:
• annual turnover is more than £10.2 million;
• balance sheet total is more than £5.1 million; and
• has more than 50 employees.
Exceptions to this would be companies in their first financial year, thereby not being affected. All businesses should assess whether they are within the scope and ensure this is assessed each tax year.
2. Audit your contractors
If you've not already worked out which of your subcontract workers are potentially covered, you need to do this urgently, well before the deadline of April 6th 2021. Identify which of your contractors provide services via a personal services company or similar intermediary in which he/she owns at least a 5% share (different criteria apply where the intermediary is a partnership). Agency workers who are paid by their agency via PAYE aren't within the scope of the rules.
3. Assess which contractors will need to be paid through PAYE
Those who have self-employed status are at risk, assessing whether the individual would be deemed to be an employee under the new rules. These include those using a personal service company or sole trader.
Businesses are legally required to take reasonable care in assessing whether deemed employment applies to a contractor. As a minimum, this will require taking reasonable steps to obtain the correct information to complete the HMRC online status checker correctly.
Most likely self-employed contracts will not allow PAYE deductions, thereby terminating existing ones. Respectively, new contracts would have to be issued outlining details on tax status and the following:
5. New Contracts and Processes
To make the bureaucracy work smoothly, both worker and client will need internal processes and template documents in place to deal with:
- Assessing the status of new and existing contractors
- Notifying contractors (and the agency which pays the intermediary, if applicable) of their deemed employment status and, if requested, providing the reasons for the determination within 31 days of a request
- Allowing the worker to challenge the determination and responding to a challenge within 45 days
- Setting up contractors on the company's payroll system
6. Communication plan
Communicating with workers about these changes at an early stage is essential. Many will be upset about potentially paying more tax and National Insurance and may wish to renegotiate their contract value/fees. If you are dealing with several affected contractors, you may need to communicate with them as a group to minimise gossip and uncertainty.
7. Timing is everything
Many worker contracts have the option to terminate with 30 days' notice, so it is worth factoring this in to your planning. For any existing contracts, the client will need to notify the individual of their status before the first due date for payment under the contract falling on or after 6 April 2021.
It may be useful to prepare a project timeline with clear deadlines for migrating existing contractors over to new contracts in advance of 6 April 2021.
Still unsure what to do?
We are here to help guide you through the forthcoming changes. Futurelink provides free expert advice please contact us now.