Frequently Asked Questions

CoComply M.D. Michael Cleavely speaks to Scott Wilson, Head of Workforce Management Consulting at Aventi - a market leading SAPFieldglass system implementation partner on recent changes to IR35 and the challenges of managing compliance

Some background

Since the UK HMRC (HM Revenue and Customs) IR35Off-payroll rules were introduced (public sector in 2017, private sector in2021), it has created a lot of change, work, and some confusion for both Companies and Off-Payroll workers. It was then repealed as part of the Liz Truss ill-fated UK Government Growth Plan 2022. And then reversed once again, meaning the Off-Payroll working rules are here to stay.

Scott Wilson reached out to IR35 guru Michael Cleavely of CoComply, prior to the reversal to understand what it really meant, and during our weeks of conversations the reversal was then reversed, making us all a bit dizzy!  

Here’s the interview:

Question 1: 'Michael, 2022… What just happened?'‍

The headline grabbing “Liz Truss” budget was extremely aggressive and, many argued, went too far too quickly.

Specifically in relation to the IR35 off-payroll working rules, there seemed to be no understanding of what had been put in place, why it was implemented, and no visible consultation on what the repeal output would mean to HMRC and companies.  

We found many of our customers were frustrated, after having spent years preparing for and implementing compliant processes.  No matter how controversial this legislation might be, the reversal has caused serious pain.

There was also the problem of the conflicting messages internally. Hiring managers were led to believe that IR35 was going away. Some companies were still on an educational path with the new regulations. The back and forth caused practical headaches, but we worked with our clients as much as possible to manage that with a degree of scepticism about the original reversal.

Question 2:  'What is IR35 – Off Payroll?'

IR35 (Off Payroll) refers to the UK’s anti-avoidance tax legislation designed to tax external workers' that are doing a similar job to an employee, at a rate like an employee. The rules apply where a worker provides their services to a client through an intermediary but would be classed as an employee if they were contracted directly. The legislation puts the responsibility for correct classification onto the customer. If the correct classification is not applied, HMRC will penalise the customer directly, and not the worker.

Whilst far from comprehensive, if Off-Payroll is new to you, a good starting point is to look at it is by considering:

• On Payroll – Works under instruction and supervision of the client.

• Off Payroll - Defined output. Liability, risk, insurance, and delivery responsibilities sit with the supplier for delivering a set piece of work or assignment with autonomy.

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Question3: 'Why did the HMRC make such a dramatic change?'

HMRC has estimated an extra £1.3bn of taxes would be collected annually from putting in place the IR35 Off-Payroll rules.  Before the change, Companies and Off Payroll Workers were incentivised to be Off Payroll. In some cases:

• Companies were classifying supervised workers as a service.

• External supervised workers had ways to reduce their tax liabilities through different avenues e.g., Company structure, paying minimum dividends to reduce income statements, offsetting costs etc.

• Companies also offset the employer's taxes they pay by defining a worker as Off-Payroll.

Question 4: 'What does the reversal of the repeal mean?'

Confusion for a few weeks...and we are now back to where we began.

The legislation was under consultation for 5 years, and then changed at a click of the fingers. Now it has changed back…. And everyone is asking— ‘What just happened?’

Today it is back to business as usual and ensuring that you are identifying suppliers to which the legislation is relevant and then applying the correct tax treatment.

Question 5: 'What have you found while supporting Customers to implement IR35 programs?'

Organisations initially put a framework and controls in place to deal withOff Payroll workers and ensure compliance.

The visibility the program brings becomes evident, which highlighted other opportunities in relation to:

• Identifying the number of external workers and what they are doing.

• Where the business is reliant on external workforce (strategic versus tactical).

• Data insights which supported better planning and workforce decisions.

• Expansion of Workforce Management Programs outside of the UK.

We also found, it brought the internal HR, Talent, Legal and Procurement business units of organisations closer together, with a collective focus upon:

• Strong Supplier partnerships.

• The right suppliers for the right type of work/worker.

• Compliance.

• Audit trail.

• Risk mitigation.

Even with the announcement of the reversal, our customers decided that they would retain their programs, due to it providing them with the right structure and controls needed to manage their External Workers.

Question 6: 'What benefits are there for the Workers for being correctly classified?'

Off-Payroll contractors genuinely providing a service may find much better contractual arrangements with engagers.  They are more likely to supply via the procurement supply chain and a SoW model, which can mean charging greater fees in exchange for taking on more risk and delivering an outcome, which can be better for all parties.

In turn, working like this can make contractor businesses more scalable and increase earning potential for the highly skilled, if approached correctly.

The challenge is getting clients to understand the legislation and embrace it with the correct working frameworks.It’s not just about getting to the right decision of tax status; you must meet HMRC’s definition of Reasonable Care.  

Reasonable Care gives HMRC confidence that you have sufficient expertise, consistency and understanding of the engagement under which the worker is providing services to make the correct determination and run a compliant programme to engage external workers.

The UK contracting market is going through a period of change now—

transformation if you want to use the popular term.  Those that embrace the changes and find the clients that want to engage them compliantly could see many huge benefits.

Although you may be subject to higher taxation, there can be benefits to being a contractor On-Payroll:

• Worker protection rights and conditions.

• It’s clear that you work under the Customers direct instruction and supervision.

We have seen a rise in payroll and umbrella companies that try to put in a structure to support workers staying Off Payroll.

Our view is, be cautious.

There is no regulation that covers umbrella companies, so this by itself increases risk. Additionally, youneed to ensure your worker rights and the payments you are receiving satisfy the compliance rules.

Final thoughts

I wish to thank Michael forsaking the time to conduct this interview with me. I learnt a lot during this discussion.

If you have been ignoring the topic in relation to IR35 and Off Payroll workers, I would recommend taking it seriously, and very soon. Companies are being audited by HMRC and the fines are significant. If you don’t know where to start, you can reach out to Michael Cleavely @ CoComply.

About Scott Wilson

Scott Wilson is an acknowledged speaker and facilitator on External Flexible Workforce.  

A New Zealand born farm boy with over 20 years of Global Procurement experience, Wilson has a proven track record in building local, regional and global Talent Acquisition models from design, creation through to transformation.  Wilson has led a succession of global change programs across a diverse and geographically dispersed stakeholder base, delivering both Customer facing, external partners and internal business solutions.

Wilson has won various accolades in his chosen discipline including being runner up for two Global Procurement awards (Vodafone External Workforce Program implementation and transformation). Presently he serves as is Head of Workforce Consulting at Aventi.  

Contact Scott Wilson:
https://www.linkedin.com/in/scott-wilson-11114512

Meet Aventi:

https://aventisolutions.com/

Aventi is a market leading SAPFieldglass system implementation partner.

We accompany you on your implementation journeyand beyond. Providing you with our SMEs from areas such as project management, integrations, analytics, change management and program support you can reduce the need for internal program resources by up to 70%. Aventi manage, maintain and evolve the technology as your needs change.

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About Michael Cleavely and CoComply

Michael Cleavely is Managing Director of CoComply. The company supports organisations by helping them to set up the right external workforce operational framework to ensure correct worker classifications.  They then offer a fully outsourced and technology enabled safeguarding service to manage on-going IR35 compliance.  This not only keeps organisations compliant but empowers them to realise the benefits from putting effective and flexible external workforce programs in place.