IR35 & HR leaders: working new the new off-payroll working rules

IR35 has been an unwelcome headache for HR teams. Few HR teams have ever been trained in IR35 let alone had real-world experience in assessing employment status under the rules. It's made finding talent harder and pushed up costs substantially. Find out how we work with HR teams at every stage and how we ensure compliance on all hires, even those made under operational/service budgets.

The IR35 challenges our clients on HR teams shared with us

HR leaders working for many of our clients had these initial difficulties after the IR35 changes:

• You had little or no knowledge of or training in IR35. No HR training course you've taken covered IR35 and no employer has ever asked you to take responsibility for this before.

• You weren't sure what disguised employment is. IR35 is complicated and many employment status decisions can be borderline.

• HMRC CEST tool is unreliable. HMRC's Check Employment Status for Tax (CEST) tool has proven flaws in it. Static private sector tools can’t handle the nuances of IR35 status determination reliably.

• You can't always see who other teams hire. When other departments like IT hire external workers, you often don't know. You can't be sure colleagues are IR35 compliant in hiring. Statement of work is not a silver bullet.

• You don't have visibility of working practices. There are no systems to track how managers treat existing contractors and how working practices impact on IR35 status.

• You have no one to contact for help except employment law solicitors. They're helpful but they only provide bit part advice on specific IR35 situations, not company-wide issues.

• Limited visibility on retrospective engagements since April 2021. It's difficult to get visibility of engagements completed by limited company contractors just from looking at invoices. This is a financial threat to the business you need to quantify.

Other HR leaders faced these difficulties:

• You couldn't get past board level/C-suite indifference. They want to see potential liability expressed as a sum of money before they'll take action.

• An IR35 team was created but lacked budget, focus and investment. Despite never having to work on IR35 before, other team members expected you to do the heavy lifting. This is because they assumed that your knowledge of employment law covered IR35.

What HR teams have had to deal with since the law change

Even now, statistics show very low board-level IR35 awareness and preparedness in organisations.

So, private sector companies reacted one of two ways to the new off-payroll working rules:

• Blanket ban contractors working outside IR35.

• Keep working with external workers in a very similar was as before.

Both approaches presented big problems for HR leaders.

Problems with blanket banning

Banning all self-employed limited company contractors had the following effects:

• Contractors left and didn't come back. They did not want to become employees or work inside IR35. They don't want to pay income tax and National Insurance contributions at the same level as employees - a 40% pay cut.

• Business-critical contracts held companies to ransom. This is difficult to manage and it could be very damaging to contractor morale in general if a sweetheart deal leaked.

• Contactors are harder to find and cost more. Because they don't want to pay the same tax as employees, many left the market for good. Supply has dwindled but demand for specialist contractors has increased.

• Small business hirers look more attractive than ever to contractors. They can determine their own IR35 status for tax purposes when they work for small businesses.

• Blanket bans push costs up higher. You have to pay 15.05% National Insurance Employers' Contributions on contractors' labour if you hire them as employees or inside IR35. With a proper system of determining IR35 tax status in place, this could have been avoided.

• Diminishing contractor talent pool. Even if you hike your rates up by 25%, contractors lose out. They'll always put their own financial situation first.

Future problems if contractor hiring behaviour remained the same

If nothing much changed after April 2021, the following problems are coming your way soon:

• HMRC WILL contact you and you have to respond within 30 days. They intend to investigate every company hiring external workers. If your initial answers don't satisfy them, an enquiry will turn into an investigation that may last years.

• You'll have to pay ALL the taxes you did not collect. You'll pay income tax, both forms of National Insurance and, if applicable, the Apprenticeship Levy on all incidences of non-compliance.

• Fines up to 100% of the tax liability. If you did not take reasonable care, fines could reach 30%. If HMRC accuses you of deliberate non-compliance, the fine could reach 100%.

• Severely damaged reputation among contractors. Did you know HMRC can transfer tax debts to contractors if a company is unable to pay tax owed (Regulation 72)? If your company gets IR35 wrong, it may be too risky for contractors to use you.

CoComply delivers IR35 certainty to HR teams and beyond

Working with CoComply removes all IR35 issues. Our service is even flexible enough to be applied in agile working environments.

Here's how we help out HR leaders, even in companies where you're responsible for IR35 compliance in other departments that hire:

• Accurate answers you can trust. Call or email us during office hours to get reliable actionable answers back. Our consultants are backed by experienced employment solicitors.

• We handle IR35 questions. If you get an enquiry from a colleague, contractor or HMRC, put them through to us.

• Contractor invoices identified and sorted back to April 2021. Each personal service company invoice found and assessed.

• Human status determinations. IR35 is too complex for AI tools to handle. An IR35 expert examines each status determination personally.

• Turn "inside IR35" roles into "outside IR35" roles. This is not always possible but we will look for opportunities, when directed, to transform statements of work and working conditions under new or existing contracts into outside IR35 roles.

• Pre-onboarding role determinations. Know employment status of the engagement before advertising for contractors or when passing onto recruiters/MSPs.

• Contractor IR35 onboarding. Before your contractor starts work, we explain the reason for our status determination statement (SDS) and answer any questions.

• Liaise with your labour supply chain. We handle issues that arise within the labour supply chain (for example, a fee payer like a recruitment agency).

• Set up IR35 flags. Know where to place alerts in your internal onboarding process to capture IR35 compliance, with clear instructions for colleagues to follow.

• Monthly contractor compliance call. We phone each contractor once a month to ensure that their engagement and working practices are consistent with their IR35 status.

• Full status reassessment every six months. A new status determination statement to reflect any changes in statements of work or working practices.

• Get IR35 alerts and action plans. If we find an issue relating to IR35 during a monthly or biannual check, you'll know straight away. You also receive an action plan for dealing with it.

• We handle the appeals process. Your contractors have a legal right to challenge their IR35 status. We work with you to handle this.

• Full recordkeeping. We file all documentation, communications and interactions related to IR35 and contractors securely online. Demonstrate full compliance to HMRC and in due diligence situations.

• Training and webinars to improve IR35 knowledge in the business. Get access to our online classes to improve your own understanding of IR35.

How CoComply benefits you, your organisation and its stakeholders

As CoComply clients, HR leaders and teams benefit from the following advantages.

• "If in doubt, call CoComply out". On any issues relating to IR35, call or email us during working hours for an accurate, quick response.

• Bake in compliant processes departmentally and across the business. Take control over IR35 processes and be confident in your outcomes.

• Get back the time you need to do your job. Free up your working day by outsourcing IR35 compliance to CoComply.

• Remove IR35 uncertainty. IR35 has unsettled many HR professionals and we get that. We take that away.

• Show board/C-suite leaders the evidence they need. Present board/C-suite leaders with an estimated IR35 liability figure. We can prepare this for you.

Your organisation will benefit from the following wins:

• Prove to HMRC you're compliant. The light-touch period has ended. Show HMRC that you have compliant procedures and documentation when they contact you.

• Contractor costs go down. We determine genuinely "outside IR35" contractors' status correctly. Make your budgets stretch further.

• Easier to hire the talent you need. Contractors feel victimised by HMRC and overlooked by clients. Win top talent by becoming known as a contractor-friendly workplace.

What makes the CoComply service different is that:

• Subject matter specialists. We're a team of IR35 experts - that's all we do - with a team of the country's most experienced employment solicitors supporting us.

• We're experienced change specialists. We've helped dozens of clients successfully change their internal processes to cope with IR35.

• One low price per contractor. We charge one low fee per contractor per month with volume discounts.

• Easy-in, easy-out service. Leave the service whenever you wish. We only offer 30-day rolling contracts.

IR35 & HR: your first contact with CoComply

Get back to what you do best and enjoy the most. Sort out IR35 once and for all in your business. And get back to winning top contractor talent.

Call CoComply on 0203 051 9792, email us at [email protected] or fill in the form on this page.

Do the new IR35 rules apply to you?

From April 2021, private sector companies with an average annual turnover in the past two years of £10.2m, a balance sheet total of £5.1 or more and greater than 50 employees are now required to determine the employment status of contractors providing services through a personal services company or those operating as sole traders. Public sector organisations have been required to do this since April 2017. Common IR35 errors include paying sick pay and maternity pay to staff.