From the 6 April 2021, the new Off-Payroll tax rules came into force and now apply to the private sector, mirroring changes that were rolled out in the public sector in 2017.
Up until now, independent contractors and freelancers have been responsible for paying their own tax contributions. As of April 2021, the responsibility for setting IR35 status has shifted from contractors to the private sector companies that hire them with the recourse for collecting these being with the ‘fee payer’ whom is often the recruiter paying them on behalf of the end client. Businesses are now legally required to ensure their contractors are paying the correct tax contributions or risk penalties and being liable for any unpaid taxes themselves. For contractors, this means they may be taxed as an employee rather than as self-employed.
The threat of being held liable for incorrect IR35 decisions is significant with HMRC stating that it will come down hard on those businesses and contractors that do not comply.
It will come as no surprise then that these changes have been met with trepidation by contractors and businesses alike.
Businesses have been nervous about HMRC’s authority to challenge working patterns, without really knowing how this would take shape. The financial implications of working outside rather than inside IR35 has also been significant, some contractors are potentially taking home up to, in some circumstances, 15 per cent less after tax and businesses engaging these workers on the payroll will incur significant costs.
For some contractors, this may mean looking for roles that do not bring them inside IR35 or that pay better, reducing available talent in the market and ultimately driving up market rates in the long-term.
While for some businesses, the threat of being held liable for incorrect IR35 decisions has forced them into taking a blanket approach where all contractors are required to work within IR35 and/or reducing the number of contractors they employ altogether.
However, despite these concerns, we have found that the introduction of these rules has been manageable. For many highly skilled career interim professionals operating in a fashion that indicates outside IR35 status, it has been business as usual.
Interim employees often possess unique skills that often cannot be replaced by permanent staff. It is also worth remembering that while permanent contracts are still dominant in business, in a disrupted environment, interim executives are an indispensable resource for organisations seeking to sustain business success and adapt and change.
For the most part, businesses have understood that making rash or uninformed decisions with regard to IR35 employment status may not only be unlawful but limit their access to specialised talent. Flexible working and, in turn, contracting, is still strong in the market – and since these changes have taken place, we have not seen a decline in or disruption to the flow of contracting.
As a business, it has been important to not only ensure our own systems are robust and compliant but that we were also in the best position to support our clients and candidates. To help navigate the changes, we worked with an experienced specialist in executive interim, Elizabeth Roberts, whose expertise has been invaluable. We look forward to re-focusing on the contract work at hand and continuing to support our contractors and clients in the weeks and months ahead.
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