Changes to off-payroll working: how will it impact your business?
In this year’s Budget, it was announced that rules around off-payroll working in the public sector – commonly known as IR35 – are scheduled to be extended to the private sector. For companies which employ contractors who work through Personal Services Companies (PSCs), it is likely that the impact on access to talent will be significant. However, there are steps that companies can take now to prepare.
Sopra Steria Recruitment was heavily involved in the latest consultation, not only through providing its own response to the proposals, but also by encouraging clients to engage and helping to shape the response from the Association of Professional Staffing Companies (APSCo).
Changes are due to come into effect in April 2020, when ‘medium’ and ‘large’ businesses will become responsible for assessing an individual’s employment status – although it is yet to be determined how these categories will be defined. While this does give businesses a little extra time to prepare, leaders shouldn’t underestimate the work that will be involved.
During the consultation period, I wrote on the challenges that organisations operating within the public sector have faced around implementation, and urged businesses which are likely to be impacted by an extension of rules in the private sector to submit a response. It seems that our call to arms was answered: in fact, the Chancellor specifically recognised in his budget speech that roll-out would be delayed after ‘listening carefully to representations’.
While we maintain that HMRC should use the data already provided by ‘agencies’ through employment intermediary reporting to track down all workers operating as PSCs and receiving gross payments - so that end-users are not forced to become ‘tax assessors’ and employment businesses to become ‘tax deductors’ - we are not alone in welcoming the postponement of the changes until April 2020. This breathing space will allow time for not only important further consultation, but also for companies to prepare themselves to change their business models, to be able to manage multiple contractor tax assessment and deduction.
We are offering our own clients guidance around how they should proceed and, aside from asking them to join us in engaging with the next stage of the consultation, we are also suggesting practical steps they can take while we await further details.
Businesses should begin by looking at their existing contingent workforce to determine which employment models contractors are working through so that they can anticipate to what extent the changes are likely to impact them.
To ensure administration associated with any changes is as simple as possible, every company will need to both dedicate a person responsible for assessing employment status of individual contractors and develop processes within their HR function so that assessments can be carried out consistently.
While the Government’s existing Check Employment Status for Tax (CEST) tool has received heavy criticism in the past - and HMRC has pledged to work with stakeholders to ‘improve further CEST and guidance before the reform comes into effect’ – those with responsibility for determining tax status will need to be trained accordingly. Businesses will also need to develop a policy statement and develop messaging to their contractor and candidate base to communicate incoming changes.
It is also vital that companies review their existing and future recruitment providers to ensure that partners are hiring and managing contractors through an IR35-compliant model. Those who are working with multiple suppliers may also wish to consider the benefits of hiring contractors through a Recruitment Process Outsourcing (RPO) model to reduce compliance and improve consistency across the business.
In the medium-term, decision makers will need to assess cost impact if contractors who are likely to fall inside IR35 choose to leave the organisation or, indeed, wish to negotiate remuneration if they were to transfer to permanent roles. However, there are still areas of uncertainty where only time will offer greater clarity.
We are disappointed that the Government has not yet responded to the impact on the companies which will be facing these changes in terms of unrecoverable costs, compliance, their ability to retain key skills and the continuation of flexible working that drives the UK economy. However, we trust that the indicated further consultation will address these fundamental issues.
With a further consultation on the detailed operation of the reform due to be published in the coming months - which will inform the draft Finance Bill legislation, which is expected to be published in summer 2019 - we are also urging businesses which rely on contingent workers operating through PSCs to get involved. It is only through sharing your challenges, experiences, and concerns that we will continue to influence how these changes are implemented.