Introduced in 2000, IR35 is a legislation imposed by HMRC which seeks to deter tax avoidance by implementing a strict set of criteria that are used to provide a status of determination confirming if a contractor sits inside or outside of the rulings.
The responsibility for the correct payment of tax, specifically national insurance and PAYE, has always fallen with a contractor, however changes that will come into force from April 2020 will see this change. As a result, the end client or agencies using suppliers in this way will become liable.
Companies are therefore being advised to act now and to put the necessary processes and procedures into place to ensure that the measures used to determine if a person falls inside or outside of IR35 are in place.
Those that fall outside of IR35 legislation receive tax benefits as they are not considered to be employed by the business. These individuals are contracted to work for a third party and therefore function as a Personal Services Company (PSC), receiving a classification in relation to tax payments.
It is believed that this approach may have encouraged some bad practice, with people claiming tax efficiencies that they are not legally entitled to.
Recognising this, HMRC extended the enforcement of stricter IR35 legislative rulings to the public sector in April 2017 before announcing plans to roll this out to the private sector next year.
In response to the changes, Hortor, the global strategic resourcing company with UK offices in Leeds and London, has developed a new division within the business to provide organisations that rely on flexible and consultancy workers with an alternative.
Joint CEO of Hortor, Andy Roe, comments: “The extension of IR35 legislation, which could move the responsibility for tax payments up the supply chain, will have implications for businesses across our industry.
“Rather than panic, we have used this as an opportunity to develop an Employed Consultant Model (ECM), which will see our clients retain the services they need through our dedicated portfolio of talent.
“We take the risk and the liability by employing a workforce that will service fixed-term and project agreements across the world. It’s not dissimilar to how we work with some of our largest clients, so it makes sense to extend this to others.
“There is no doubt that relationships will change, and this could see an influx of contractors leaving the market, invariably leading to a skills shortage. With the Employed Consultant Model (ECM) division we will work with contractors and customers to create a model that works for both.”
Providing advice and guidance to organisations throughout the Leeds City Region, Hortor is launching a series of drop in sessions for those that don’t understand the details or criteria that is used to confirm an IR35 status determination.