IR35 Tax & Legal: Introduce organisation-wide compliance with CoComply

Although the change in IR35 regulations created no new taxes, it shifted responsibility for judging employment status to businesses. Ensuring the rules are followed in a larger business is made harder by widespread lack of awareness and prior application among managers at multiple hiring points. CoComply handles all stages of IR35 compliance for some of the UK's largest firms.

Why your business, the end client, is now responsible under the new off payroll working rules

For decades, private sector businesses have relied on a contingent workforce to gain a competitive advantage and deliver demanding projects. The public sector uses self employed contractors to find new ways and approaches to deliver services more efficiently through innovation.

High-skilled contingent workers add to the sum of organisation' engine because, in most cases, their internal staff lack the knowledge or capacity to deliver the desired outcome.

But it's not always like this. Many contractors are brought in as additional labour to perform functions that can be carried out by current employees where short staffing is an issue.

And it's on engagements like these where HMRC suspect that contractors are, in their view, "disguised employees".

HMRC suspected mass tax avoidance and that's why they changed the IR35 rules

The Inland Revenue persuaded the government to introduce IR35 (also called the Intermediaries Legislation) over two decades ago. Many years later, their predecessor, HMRC, successfully lobbied to amend UK tax legislation to make companies that hire personal service company contractors responsible to determine a contractor's employment status.

That's because, for over 20 years, determining employment status was the responsibility of the contractors. HMRC was concerned that, because outside IR35 contractors do not have to pay income tax and National Insurance Contributions on their invoices, this led to mass tax avoidance.

Heads of tax and legal reacted how HMRC wanted

Few HR and hiring experts outside the legal professional knew little about how to determine employment status at the outset. They never had to learn it before because it was not their responsibility.

Likewise, few heads of tax or legal had much IR35 training or practical application of determining employment status. So, to avoid taking a financial risk, most companies decided to end offering outside IR35 positions to contractors working for their own limited company. This was just as the taxman had hoped.

HMRC was the big winner from the new rules. In 2017 and 2021, they received much higher revenues from employment taxes than in previous years. Employment taxes are far more lucrative to them than corporation tax receipts they'd normally get from a contractor. From their perspective, contractors were now paying the correct income tax and National Insurance.  

Self employed contractors were the biggest losers. They now paid the same tax as an employee but weren't protected by employment rights and benefits like sick pay.

Hiring organisations like yours now shoulder a National Insurance burden. You're also liable for paying Apprenticeship Levy on contractors' invoices when they were inside IR35.

How has this affected your organisation?

Blanket banning external contractors has likely made life more difficult for businesses in the following ways:

• Small businesses have a tax advantage. The new rules don't apply to smaller firms so contractors can declare their own IR35 status meaning they earn far more working for them than you.

• Valued contractors don't come back easily. They either won't work for you inside IR35 at all or their rate goes up so they get the same after paying tax that they'd receive if they were outside IR35.

• Procument and project budgets don't stretch as far. When you need outside involvement to get things done, you spend a lot more to achieve the same result.

• Fewer applications for roles. A growing sub-set of contractors will not apply for roles within IR35 as they consider an attack on their independence as a small business owner.

Never let a crisis go to waste. Read below how CoComply have helped medium-to-large businesses turn the new rules into an opportunity.

Position your organisation to take advantage of the revised IR35 employment legislation

Public sector clients have had a much longer time to get used to the new Off-Payroll rules.

It is perfectly possible to be IR35 compliant and offer engagements both inside or outside IR35 to limited company contractors by partnering with CoComply.

The key benefits to partnering with us are:

• A single source of IR35 truth. You and your colleagues across the business and across the labour supply chain have access to experienced IR35 consultants by phone and email. Normal turnaround time for enquiries is 3-4 hours.

• IR35 compliant processes at all hiring points. We work with each hiring centre in your organisation so that, when a situation arises that may require IR35 guidance like during contractor onboarding, CoComply can be engaged.

• No need to train staff in IR35 compliance... Let your HR, procurement and project managers get on with what they're good at.

• ...but access to CoComply University. If your staff wish, they can log into our client area for up-to-date training modules and webinars that increase individuals' IR35 competence and confidence.

• Contractor classification and directory. We go through all your supplier data to identify PSCs within your supply chain. When discovered, we determine whether there are any IR35 implications and advise you on a course of action if there is. We can also help you create a directory of contractors, ideal for HR, procurement and project managers.

• Role-based determination IR35 checks. Know whether the position you're offering is inside or outside IR35 before you advertise it or pass it to your recruitment partners.

• IR35 Status determinations. Prior to the start of a contract, we create your contractor's status determination statement and distribute it to all relevant parties including the fee payer if you use recruiters.

• Contractor onboarding. Professional advice for contractors to ensure that their IR35 status is watertight pre-engagement including checks on public liability insurance policies and likelihood of substitute use.

• Ongoing working practices checks. We ensure than an individual's employment status is compliant throughout with monthly contractor check-ups.

• Line management catch-up. Once a quarter, we liaise with the line managers overseeing contractors to check that how they are managing a project is compliant with the contractor's IR35 status.

• Due diligence data rooms. All documentation and correspondence with staff and contractors is kept in a data room that can be accessed via a secure password. The standard of recordkeeping is high enough for due diligence situations during M&A episodes.

• 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.

How working with CoComply delivers positive outcomes

For every private sector client that has joined our service, it has always been the Head of Tax/Legal that has had the final say.

Partnering with CoComply delivers the following benefits:

• Become an IR35 confident business. You, your colleagues and your suppliers get answers from us you can depend on whenever you need us.

• Human decisions. Most IR35 compliance tools rely on AI and lack the sophistication needed to judge pre-engagement and ongoing compliance. Every status determination statement, written contract, statement of work is assessed by a human, not a machine.

• IR35 compliance integration at all levels. Introduce compliance into your workflows via your HR/ERP systems.

• Reduced overheads. Make budgets stretch further by reducing engagement costs by up to 25%.

• Access to top talent. Gain a reputation as a contractor-friendly space where each engagement is assessed for IR35 case by case.

• Remove doubt and uncertainty. In many businesses, IR35 has unsettled many staff because of the often existential financial risk of getting it wrong. We relieve you of that and also help you with any potential historic IR35 compliance issues (including the likely size of any deemed payment if applicable).

Bespoke IR35 compliance solutions for businesses and the public sector

Changes to IR35 in the Finance Act needn't be the end of working with contractors on a self employed basis. It could be the opportunity to get the talent you need instead.

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.