How has IR35 changed your management of specialist contractors?

Most companies and HR departments are geared up for the  in-house recruitment of permanent or temporary staff. The company onboarding, and payroll process is designed with their needs in mind with allocated salary ranges, monthly payment dates, hours, holiday, sick pay, scaled tax and National Insurance payments etc. Full time employees may also receive additional benefits such as company laptops, phones and cars, maternity and paternity leave, pensions as well as paid sabbaticals.

IR35 was introduced in April 2000 to counter the avoidance of employed levels of tax and national insurance by individuals providing their services through intermediaries, such as Limited companies and umbrella companies collectively known as a personal service company (PSC).   In April 2017 legislation was revised to move the responsibility and liabilities for IR35 status within the public sector from contractors to employers. The private sector is now getting nervous about the constantly shifting employment legislation with regard to consultants.

As off-payroll worker they are currently paid through their own PSC who pay Income Tax and National Insurance contributions (NICs). The client company pays the PSC for the contractors work without deducting income tax or National Insurance contributions (NICs) under PAYE. There are several potential tax advantages to this type of arrangement:

• Wider range of expenses against taxable profits than that allowed an employee to set against his taxable income.
• Cashflow benefit in avoiding tax being deducted at source each month.
• The consultant may be in a position to receive dividends as an alternative to only being paid a salary, an arrangement which is likely to mitigate their liability to NICs.

In the private sector, there is currently no tax liability for the hiring company, where the contractor provides services via their own limited company or PSC. If they are deemed ‘inside’ IR35 and HMRC declares that it’s an employment relationship, then tax and National Insurance will be deducted from their earnings and the liability for any missing tax lies with them.

With more IR35 changes expected to be rolled out to the private sector in 2019, it’s going to be an increasingly contentious area that companies, and HR departments will need to keep a close eye on. Compliance requirements require companies to have robust employee onboarding systems in place to properly manage contracts and ensure informational clarity.

As an experienced specialist contractor consultancy, SMCC take care of the crucial gap in expertise and knowledge relating to the legal requirements of recruiting. onboarding and paying contractors, managing all aspects of the process between contractor and client to protect both parties through screening, running checks, payments, invoicing and drafting contracts, to ensure that all legal obligations are met.

SMCC use digital methods of managing onboarding providing companies with significant advantages and a complete digital log of all documents that are exchanged with any new hires including contractors. Our contract templates automatically adjusted to match the job role, providing companies with the tools to ensure the status of each contractor, consultant and freelancer is clearly defined and documented. Outsourcing provides a smarter way to onboard new employees into your business – reducing admin time, boosting efficiency and improving contractor/consultant engagement. We ensure integration points between the outsourced processes and the retained payroll processes are cost and time inefficient.

SMCC understand that onboarding, contracts and payroll are highly administrative functions which can be outsourced easily. When outsourcing or reviewing an existing payroll outsourcing contract, cost efficiency of payroll integration points, quality of service and risk SLAs are all considered to ensure best value for money.

With accountancy firms estimating that between 80% to 95% of take-home pay for consultants is not tax-compliant and HMRC is more than happy to retrospectively tax and fine contractors if they fall outside IR35, we ensure your consultants and company don’t become an accidental tax avoidance target for HMRC. We help identify IR35 status and advise employers and consultants of the best route to take to minimise risk and liability by sitting down with our clients and listening to their needs before offering tailored contract and payment solutions. We want the best for our clients and our business has grown as we manage any concerns out of utilising skilled contractors. We work with in-house HR, Finance, Risk & Compliance departments to achieve minimum disruption, streamline payments and invoicing to retain key contractors.

To see how has IR35 changed your management of specialist contractors contact us today or visit our services page to see how we can help your business.

Although there are few concrete details showing how the new IR35 reform will impact the private sector, SMCC has the experience and access to the legal expertise to fit seamlessly as an extension of your corporate arm to provide a faultless service to contractors and peace of mind to the companies hiring them. If you are in any doubt about your next steps please contact SMCC by calling 01277 211151 or by email info@smcc.uk.com

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