IR35: C-Suite and how to manage the new off payroll rules

The change to IR35 legislation significantly impacted many companies and their boards. For a start, C-Suite needed to understand the challenges and spearhead changes to processes. Financial directors needed to assess the cost of compliance & non-compliance. CoComply works with senior stakeholders to introduce reliable processes to protect access to talent, save money and reduce the risk of non-compliance.

Why has this happened? What company directors need to know.

IR35 is the most complicated employment law in the UK. Contractors had 20 years to get good at it.

There are three reasons why responsibility for determining employment status was switched to companies.

First, people in HR, procurement, line/project managers, board level staff and heads of tax/finance have never had to deal with IR35 before.

Second, potential rewards. If HMRC finds a company wrongly classifying enough contractors, the rewards are much higher than what they used to do before - chase individual contractors.

Third, a combination of the first two factors makes it more likely that companies will behave cautiously to protect themselves from the risk of a substantial fine. HMRC was correct.

Did you blanket ban independent contractors trading through a limited company?

Many private sector companies, like their public sector counterparts, have blanket banned the use of "outside IR35" contractors. With "outside IR35" contractors, you pay the invoice and that's it.

If you chose to blanket ban contractors, you would have offered them one or more of the following choices:

• Work "inside IR35". Contractors are effectively employees even though they're providing services to you via intermediary companies (i.e., their own limited company). But they don't get employment law right and they pay income tax and National Insurance contributions at the same rate as your salaried employees.

• Become employees. They also pay income tax and Employee NICs. They forego a life of self-employment to be told by people who, most of the time, know less and have done less than them.

• Work through an umbrella company. Like working inside IR35 but the umbrella company takes another slice out of their salary.

Contractors, in the main, hate these choices. They want to be self-employed choosing to work for you one month and a public sector body on something completely different next month, for example.

Or did the way you dealt with limited company contractors not really change?

If you still welcomed contractors providing services via their own company, you are setting a trap for yourself.

HMRC introduced IR35 to counteract what they view as egregious tax avoidance. And they expect companies to root out what they consider disguised employees.

If you have not adapted the way you operate to comply with the Intermediaries Legislation, then:

• You will hear from the taxman. Following a 12-month light-touch introduction period, HMRC intends to contact companies using contractors. If your answers don't satisfy them, they'll investigate and that could take years.

• You'll pay back all taxes on deemed employment income. Under IR35 legislation, you'll pay back income tax and both forms of National Insurance contributions on the value of every non-compliant invoice. Plus the Apprenticeship Levy if applicable.

• You'll pay a fine of up to 100% on top. Starting at 30% for not taking reasonable care and ending at 100% for deliberate non-compliance.

• Contractors won't work with you. If HMRC is unable to recover unpaid tax money from you, they can use Regulation 72 to get it from the contractor. If you gain a reputation for inadequate IR35 management, no contractor is going to put themselves at the risk of a fine by working with you.

How should you handle this?

That is ultimately a decision for every managing director and chief executive in the land. But CoComply firmly believes that the new IR35 rules give your company the opportunity to create a competitive advantage for yourself.

With our service, you'll do exactly that. Working with us, you'll create:

• A fully IR35-compliant environment. With you and your staff, we identify the departments and actions that require IR35 action. Your ERP triggers these alerts when an action takes place and colleagues are given instructions on what to do next.

• IR35 leaders across the business. CoComply will create a steering team of leaders (primarily in HR, procurement and project management) and build their IR35 knowledge and confidence over time.

• A contractor-friendly environment. Show the country's top talent that you know that all contract work is not "disguised employment". Gain a reputation as the company that, when applicable, lets contractors keep more of their money.

• Stretchable budgets and increased profits. By correctly applying IR35, you'll see where you can create independent contractor opportunities. Being "outside IR35" means that you don't have to find money to meet tax payments like Employers' NICs and the Apprenticeship Levy on top of contractor invoices. You save money and streamline internal processes further.

• An organisation that can withstand HMRC investigations and due diligence. We securely store all IR35 documentation and correspondence online in case HMRC want to investigate. M&A experts also warn that IR35 compliance is likely to feature in due diligence exercises more and more over time.

These are the steps we take to guarantee IR35 compliance across your business

A complex problem like IR35 requires a detailed solution. Our solution even works in companies and public bodies with agile working practices.

• You get one central point of expertise. CoComply is an experienced team of IR35 consultants providing support to dozens of clients from international pharma companies to education boards.

• You have one central team that handles enquiries. One place to ask IR35 questions for you and other IR35 stakeholders in the business including HR, procurement, line/project managers and even your contractors.

• We join up all hiring points in your organisation. We work with many organisations that have multiple hiring points in them. Each has access to the same level of protection we offer and we often help departments understand each other better.

• You get alerted when IR35 comes into play. We identify the points at which actions might trigger an IR35 review and instruct your team on where they should place them in your ERP system. Each alert tells the colleague who sees it what they should do next.

• We liaise with your labour supply chain. If you use, as an end client, recruitment agencies, we can liaise with them on issues of concern you have.

• We quantify historic IR35 issues. We identify all instances of limited company contractor invoices going back to April 2021 (or April 2017 for public sector clients). We then issue guidance on what to do if we suspect non-compliance.

• We can turn "outside IR35" to "inside IR35". This is not always achievable but we can review appointments like to be inside IR35 to turn them into outside IR35 appointments.

• You get full contractor onboarding. We speak with each contractor you onboard, tell them the reasons we have for determining their particular employment status and answer any questions they have.

• We do monthly contractor check-ins. All contractor appointments must be managed carefully, particularly if they are outside IR35, for ongoing compliance. We telephone each contractor once a month to verify their working practices and how they're managed.

• We run biannual status determination statement reviews. Every six months, take the opportunity to review and revise a contractor's progress, adding in additional milestones if necessary for example.

• A guiding hand in contractor appeals. You must respond to appeals by contractors against their IR35 status determinations within 45 days. We help you manage this.

• We create, maintain and update a IR35 data room. We store documentation, correspondence, check-in calls and more relating to IR35 in a secure, password-protected online space.

• By your side during HMRC investigations. If HMRC investigate you and they need access to documentation, you can provide it via your data room or ask us to retrieve it for you.

• Help in due diligence situations. With IR35 presenting such a financial risk to businesses, IR35 compliance will become an increasingly important factor in M&A.

• We run staff training. You and staff across your business can access our online training materials whenever you want. We also hold regular webinars.

• We oversee external business consultant hiring compliance. This is complicated but there may be IR35 issues relating to external business consultants you use. Let us investigate and correct if applicable.

• Office holder management. Arrangements surrounding the appointment of non-executive directors, company secretaries and office holders are non-compliant, especially if they are operating via a personal service company. Let us correct this if applicable.

CoComply are here to make your life easier

As a CoComply client, you know:

• We're available when you need us. During office hours, you'll get the information you need either straight away or within 4 hours.

• You'll develop robust IR35 processes. Compliance in every department and in every action your staff take.

• Your leaders and their teams work better. They're not trained in IR35 and, given the financial risk, it's too much of a burden.

• The cloud of uncertainty will be lifted from you. HMRC will contact every company so know that your robust defence is in place long before you need it.

• You can enter any M&A process with confidence. Don't let a game-changing deal fall at the last because of unquantifiable IR35 risks.

• You'll be able to compete for the best talent - again. Make a name for yourself as the client that bucked the trend of blanket bans.

• Projects will be cheaper and get done faster. Contractors are happier meaning they get their work done faster. The more outside IR35 contractors you have, the cheaper the project.

CoComply: IR35 for procurement teams and the organisations they belong to

Other IR35 solution providers sell you static status determination tools and insurance. It's not enough.

HMRC are more interested in compliant working practices and conditions. They want practical examples of how contractors are managed and paid. They want to see records of when your contractor sent a substitute to do work on their behalf.

CoComply's is the only end-to-end, human-led service. To start a conversation, please call 0203 051 9792, email us at [email protected] or fill in the form on this page.