How Can Private Sector Get Ready with the Contracting Under IR35 Rules? - CloudCo Accountants

How Can Private Sector Get Ready with the Contracting Under IR35 Rules?

Cloud Co Contracting under IR35 rules

If you or your company works with contract workers in any way, you need to understand everything about IR35 tax reforms. This will help you minimise the risks of defaults. On April 6, 2020, the changes in the IR35 will be introduced, and the private sector companies must be ready with their contracts.

According to the new IR35 legislation, the contractors who currently work as ´disguised employees´ will be targeted. The private sector firm has to decide if the contractor who provides services to them should be given a contract of an employee or self-employed personnel. These reforms are similar to the ones that were introduced in 2017 for the public sector.

Now, with the introduction of IR35 in the private sector, you must understand all the opportunities and risks associated with it. With the current reform, it will mainly affect the medium-sized as well as large-sized businesses. But it is important that you understand all the intricacies associated with it so that you are absolutely ready before April, 2020.

Why IR35?

The IR35 legislation came into existence in the year 2000. The main idea behind introducing it was to take away the privilege of individual workers who offered their services through a limited company but did not have their own business accounts. To sum up, the aim was to target the ´disguised employees´ who were offering services to an employee but were not treated like traditional employees. However, in April 2017, it became more targeted when it targeted the public sector. It was up to the public sector employers to decide if an employee came inside IR35 and if they did, they were asked to get NICs deducted at source.

How can the private sector prepare itself?

The private sector can learn from the problems that the public sector faced when the IR35 was targeted at them. Some declared that they would stop using Personal Services Companies (PSC), but this is not a solution in the long run. By understanding IR35, you can actually plan the contracts for the individual workers better. There is enough time from now till April 2020 to segregate your employers into the ones who are inside IR35 and the ones who are not. You can even use it as a way to improve your relationship with your contractors.

Let us check out some of the ways in which you can be ready for IR35 as a private sector company!

Work with professional employment organisations: Collaborating with PEO has many advantages. Since the PEO is the ‘employer of record,’ it takes up all the responsibilities of the contractor, and you don’t have to deal with any liabilities as an employer.

Work with in-house contractors: If you bring your contractors in-house, they will have to give up on the tax benefits that they had when they worked as self-employed contractors. So, you must have a great relationship with them so that they are ready to give it up. However, if they agree, you actually get to retain them with your company. But this will increase your responsibilities as an employer because you will have to do all the formalities and insurance for them.

Distinguish between contractors inside and outside of IR35: You mustn’t use a one-size-fits-all model for it. You must distinguish between various kinds of contractors under IR35. That will help you retain talent and also save you from making mistakes in making the contracts.

What does it mean for the private sector?

There are many potential risks associated with IR35 in the private sector because the liability in case of defaults can be huge. The fee-paying party needs to pay huge fines in case HMRC finds problems in the contracts or taxes. However, you must note that provider sector end clients, as well as recruitment agencies, can go for IR35 insurance to protect themselves in case there is an investigation launched by the HMRC against them. So, there are ways around IR35 that will help you against any kinds of issues that arise at a later stage.

Final words

The entire process of adhering to all the compliances of the IR35 is challenging. You can use the services of consultancy companies such as CloudCo group so that they can help you with an in-depth audit and provide you with the right solutions. There are always tweaks and changes made by HMRC to IR35, and they are quite aggressive when it comes to the compliances. Therefore, it is a good idea to have expert consultants who have experience in working with such contracts and can help you successfully sail through the process without any hassle. With April 2020 around the corner, private sector companies should prepare themselves right away to make sure that they are totally compliant.

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CloudCo Group is a Chartered Management Accountancy Firm offering premium accounting services to a range of businesses and individuals.

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