The Changing Tax Landscape
In recent years, there have been radical changes to the way the off-payroll working rules, commonly known as ‘IR35’, are administered. The evolving landscape poses both challenges and opportunities for the recruitment agencies that place contractors and the end-clients that engage them.
For some time, HMRC has suspected independent workers of widespread tax avoidance, claiming that just 1 in 10 contractors who ought to be operating inside IR35 are doing so. Just recently, the Government said it believes non-compliance among contractors will result in a £1.3bn loss in tax revenue to the Treasury by 2023/24.
As a result, IR35 reform was introduced in the public sector in 2017. Public sector organisations are now responsible for setting the IR35 status of contractors they work with. As part of this reform, the liability has also been transferred, with the fee-paying party in the supply chain – often the recruitment agency – financially liable should HMRC find the end-client guilty of non-compliance.
In the 2018 Budget, the Chancellor announced that private sector changes will be enforced in April 2020 (later postponed to April 2021), with the responsibility of setting IR35 status being passed from the contractor to medium and large companies. Similar to the public sector, fee-payers are once again expected to carry the IR35 liability.
Recruitment agencies are now faced with the prospect of being held liable for mistakes made by end-clients, and so are preparing to contribute to the discussion. Given IR35 liability can run into hundreds of thousands of pounds, recruiters need to be confident of a contractor’s status, while at the same time, be able to engage those deemed inside IR35 in a compliant and cost-effective way.