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IR35 changes affecting temporary workers in the private sector April 2020 – be prepared

HR teams will be on the front line in managing this change in legislation- so it’s not too soon to start planning for it.

The government will implement significant and far-reaching changes to the application of IR35 in April 2020. These draft changes propose to transfer the responsibility of deciding the tax status of temporary workers who work through a personal service company (PSC- a limited company) away from the worker and onto the hirer instead- i.e. the business using the temporary worker. Temporary workers who are paid through PAYE at the agency will not be affected.

HMRC are doing this to level the tax playing field between workers who are paid through the PAYE system, and those who are paid through a PSC and gain the tax benefits of being self-employed. They are workers who are in disguised employment – if they did not have a PSC they would be working in the same way as an employee.

The government did the same thing in the public sector in April 2017, which caused significant disruption in the temporary labour market. Delays in publishing the final legislation and lack of preparedness for the change within the public sector resulted in contractors walking off projects and demanding pay increases if they were assessed to be inside IR35. To avoid this in the private sector, companies are being urged to start planning as soon as they can

Assessing whether a worker is inside or outside IR35 can be complex and time-consuming to do. There are many shades of grey in some roles which do not make the decision easy. HMRC has an online tool called CEST which is designed to help the hirer or worker assess their own employment status but it has been widely criticised by users and is being developed further by HMRC to make improvements before the legislation comes in.

In addition to this administrative burden, hirers of temporary workers will be responsible for passing the decision on employment status on to their agency or hiring partners. If the hirer does not pass this on and the status is decided incorrectly, the hirer will be liable for any tax, employers and employees’ national insurance that is underpaid

In addition, the hirers will need to monitor if the employment status changes during the course of the period of hire of the worker. For example if a worker is taken on to design a new process, the role may initially be akin to a consultancy role which could be outside IR35- but over time this role may morph into more of a ‘business as usual’ role , in which case the role is more similar to that of an employee. Headache anyone?

The only relief is this will not apply to small companies i.e. if two of the three apply

  • Turnover not more than £10.2m
  • Balance sheet not more than £5.1m
  • No more than 50 employees

HMRC has just concluded a consultation process and draft legislation is expected over the summer. We will be waiting for that eagerly.

In the meantime

  • Conduct an audit of your organisation's temporary workforce suppliers and their payment models- PSC PAYE or both
  • Ask them how they are preparing for the change in legislation
  • Ascertain the size of your temporary workforce and roles they carry out.
  • Develop processes and systems for assessing the employment status of temporary workers-some roles will be obviously inside IR35 -focus on the ‘grey’ roles.
  • Work out which workers are in situ now who may be affected by this legislation
  • Consider an appeals process for employment status decisions.

Oakleaf Partnership provides a compliant PAYE payment service for temporary workers.

Related articles

With upcoming legislation poised to have a big impact on contractors the article below from HR Magazine explores the potential impact of this on HR and on the makeup of how organisations will use headcount.

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