Recruiter - Special Report - December 2020 by Redactive Media Group

Special Report

THE FINAL TO IR35 SPONSORED BY

WWW.RECRUITER.CO.UK 31

31 COVER_RECRUITER DECEMBER_Recruiter.indd 31

19/11/2020 13:32

REC.Dec20_040.indd 40

18/11/2020 18:34

Payroll

IR35 AND PAYROLL LIFTING THE VEIL OF CONFUSION AROUND LEGISLATION

S P O N S O R’S STAT E M E N T

EDITOR’S COMMENT

RE-IMAGINING PAYROLL WILL PROTECT AGENCY PROFITS Hive360’s CEO David McCormack explains how strategic payroll can help protect and maximise profits for recruiters, and why outsourcing payroll must be a strategic decision that addresses wider policies including efficiency, cost saving, staff retention, productivity, employee engagement and wellbeing. Today’s world of work is placing unprecedented demands on agency payroll. The growing complexity of compliance, expansion of IR35 rules, and mounting pressure on agencies to look after workers’ welfare, is a heavy commercial burden for recruitment businesses. Hive360 is a specialist employee benefits and outsourced payroll provider, and its compliant and reliable PAYE payroll support and employment administration reduces overheads and improves operational efficiencies. Recruiters outsourcing their temporary workers’ PAYE payroll to Hive360 report savings of £100 or more per worker in the first year. The Hive360 payroll solution also has a host of tools that support employee engagement strategies, to deliver communication, wellbeing and lifestyle benefits, via its market leading Engage app, included as standard for all clients.

SHEDDING LIGHT ON AND TRYING TO UNTANGLE IR35 LEGISLATION FOR RECRUITERS IR35 is the topic that most concerns recruiters at the moment, just a few months away from April 2021, when the off-payroll rules go into force for private sector hirers who meet specific criteria. The entire IR35 regime is so tangled, so fraught with ‘gotcha’ perils, that even those who impose this legislation find themselves having to go back to it time and time again to clear up some ambiguity. For instance, the latest round of concern over the impending legislation centres on wording – determined to be unintended – around umbrella companies that will have to be amended in the next Finance Bill. This signals poorly imagined and poorly understood legislation. At any rate… we hope our latest Special Report will shed light for you on more dusty corners of this devilish legislation.

DeeDee Doke Editor Recruiter/recruiter.co.uk

David McCormack CEO Hive360

EDITORIAL +44 (0)20 7880 7606: Editor DeeDee Doke deedee.doke@recruiter.co.uk Contributing writer Christian Koch, Greg Pitcher Production editor Vanessa Townsend vanessa.townsend@recruiter.co.uk Art editor Sarah Auld Picture editor Akin Falope ADVERTISING +44 (0)20 7880 6231: Senior sales executive Joanna Holmes joanna.holmes@redactive.co.uk PRODUCTION +44 (0)20 7880 6209: Senior production executive Rachel Young rachel.young@redactive.co.uk PUBLISHING +44 (0)20 7880 8547: Publishing director Aaron Nicholls aaron.nicholls@redactive.co.uk

Redactive Publishing Ltd 78 Chamber Street, London E1 8BL 020 7880 6200

WWW.RECRUITER.CO.UK 33

33 intro_RECRUITER DECEMBER_Recruiter-NEW.indd 33

19/11/2020 13:33

Is your business prepared for the pending

IR35 changes? Optimus Shield offers an IR35 determination tool that: Determines the IR35 status of a contract Produces the government required Status Determination Statement Includes comprehensive insurance, mitigating risk for the entire supply chain Provides personal protection insurance for the contractor against HMRC investigation Is based on tax legislation & published case law Produces a white labelled SDS to match your brand

Inside

Outside

(03333) 449 571 REC.Dec20_042.indd 42

enquiries@OptimusShield.co.uk 18/11/2020 18:33

Payroll

eyond the stiﬂing winter restrictions to tackle coronavirus, and the UK’s full exit from the EU, lies a third major challenge for recruiters, and it is shrouded in just as much uncertainty and confusion. On 6 April 2021, changes to the law will make agencies responsible for payment of tax and National Insurance for thousands of workers. The off-payroll working changes introduced in the Finance Bill bring much of the private sector – apart from the smallest ﬁrms (see box on p38) – into line with the rules in place in the public sector since 2017.

Recruiters need to spring in to action now to get to grips with the challenges of the off-payroll changes coming into effect in April. Greg Pitcher explains

TAKING ON RESPONSIBILITY WWW.RECRUITER.CO.UK 35

35-38 payroll feature 1_RECRUITER DECEMBER_Recruiter.indd 35

19/11/2020 10:31

Special Report

It means end users will be responsible for determining the tax status of people who provide services via an intermediary, but fee payers will ultimately carry the can for paying HMRC. Lawyers have warned that this leaves recruiters with a dilemma. “The broad position is that if a client carries out an assessment using reasonable care, but gets it wrong, the staffing company acting in reliance of that assessment in good faith is liable,” said Kevin Barrow, partner at law ﬁrm Osborne Clarke. “The staffing company is in an invidious position of not knowing if it can rely on the assessments.” Agencies are left to second guess whether a client is being too scared of the complex rules and classing too many supplied workers as employees for tax purposes.

“The stafﬁng company is in an invidious position of not knowing if it can rely on the assessments” KEVIN BARROW Partner at law firm Osborne Clarke

This approach would cost genuine contractors money, add an administrative burden to agencies and potentially see valuable people exit their roles to the detriment of all parties. On the other hand, could the end user be playing too fast and loose in a bid to maintain the status quo for contractors – which could lead to a big bill for the recruiter as fee payer further down the line? An agency with 10 contractors on a site using personal service companies (PSCs), each paid £75k per year for three years, could owe tax and NIC on £2.25m of wages, Barrow points out. If they’ve underpaid these by 15 percentage points because of trusting an incorrect assessment of being outside IR35, that would leave a bill of about £333k and the penalty could double it to £666k even before interest is factored in.

Sector shift? The nature of the recruiter-client relationship makes it even more likely that the ﬁnancial burden will fall onto agencies, Barrow adds. “Even if they can demonstrate that the end user is in fact liable,” he explains, “the end users often require staffing companies to indemnify them for any tax suffered as result of supply of contractors.” Ultimately the IR35 changes could lead to a signiﬁcant shift in the sector, he adds. “This will drive consolidation of the industry. Rightly or wrongly, end users will trust larger, more sophisticated suppliers to get this right – and to pay any tax when a claim is made. They have stronger balance sheets. “It is bad news – fairly or unfairly – for relatively

smaller staffing companies who potentially will not be trusted by end users to get this right.” Seb Maley, CEO of IR35 specialists Qdos, says that when the changes to off-payroll working legislation were introduced for public sector clients in 2017, there was a “massive impact” on delivery of projects. “The public sector is inherently risk averse and there were blanket determinations so everyone working for a government body was determined as inside IR35,” he says. “It led to people leaving. They had the private sector to jump into.” Contractors know they will eventually pay a hefty price for being deemed employed rather than self-employed for tax purposes through the legislation, Maley insists. “The ﬁnancial impact always ends up with the IM AGE S | I STO C K / N O U N PROJ E C T

36 RECRUITER

DECEMBER 2020

35-38 payroll feature 1_RECRUITER DECEMBER_Recruiter.indd 36

19/11/2020 10:31

Payroll

A STORM OVER UMBRELLAS Ministers have been urged to pass legislation to stop the off-payroll working changes interfering with the way recruiters use umbrella companies to administrate tax payments. HMRC was forced to issue a statement in October after the spotlight turned on a seemingly innocuous amendment to section 61O of chapter 10 of the Income, Taxes, Pensions and Earnings Act. “It said every company was an intermediary,” explains Dave Chaplin, founder of compliance specialists IR35 Shield. “An umbrella company would be counted as an intermediary, so the company paying the umbrella company becomes liable for the tax deductions. “Many agencies legitimately use umbrella companies to avoid operating their own payroll and would need to bring their payroll in-house.” The Freelancer & Contractor Services Association (FCSA) raised its concerns over this situation and demanded a meeting with HMRC, which the contractor body later described as “positive and constructive”. “HMRC has accepted that it was never an intention of the reforms to stop a compliant umbrella company from operating as it does today when the new rules come into effect,” said the FCSA after the meeting. Barrow agreed with the body that an amendment to legislation was needed to ensure umbrella companies were not caught in the changes. But he warned it would not be straightforward, especially with so much occupying ministers’ time. “If there is no parliamentary time before 6 April then there may be an announcement that there is an intention to do that in the summer, pending which the government will expect affected people to trust that the legislation will not be enforced on the basis of its current wording. That would not be entirely satisfactory.” Even if legislation is amended at the last minute, getting umbrellas off the hook, there could be further ramifications, Barrow warned. “HMRC will be concerned about creating loopholes; and taxpayers will be concerned about other unintended consequences creating uncertainty for members of the staffing supply chain.” An HMRC spokesperson said: “We have engaged with stakeholders to understand their concerns about part of the off-payroll working legislation and reassure them that the policy intention remains in line with our published guidance. “We continue to work closely with stakeholders on this issue and are considering what action is required to ensure the rules apply as intended.”

contractor – they can end up more than 30% worse off in take-home pay if assessed as inside IR35. Employers’ National Insurance, for example, gets passed down the line, and travel expenses can’t be claimed to reduce tax.” Private sector clients had a dry run preparing for the law change last spring before it was put back a year because of the coronavirus outbreak. This showed that not all end users would treat it in the same way. “Determining someone as inside or outside IR35 is not black and white; it is based on decades of case law,” says Maley. “There are grey areas.” Indeed, a government website asks workers using intermediaries a huge number of questions before determining their IR35 status, including whether a substitute can be sent in their place; how much control the client has in selecting tasks, hours, location and working methods; what costs are incurred; and how they are paid.

Opportunities The complicated nature of the legislation – which aims to ensure anyone who would be classed as employed if contracted direct pays a similar level of tax as employees – has opened up opportunities for

“Determining someone as inside or outside IR35 is not black and white; it is based on decades of case law. There are grey areas” SEB MALEY CEO of IR35 specialists Qdos

recruiters, as well as threats, Maley says. Recruiters who can understand the fine points of IR35 determination and help clients understand the benefits of correctly and justifiably ruling a contractor as outside the scope of the legislation will be in high demand both from end users and workers. “Some agencies have used the rules to good effect for talent attraction.” End users will also be keen for guidance on how to implement the new laws correctly from April. “Clients will look to agencies for assistance. Many agencies will have people within their team who specialise in IR35. They can administer a

WWW.RECRUITER.CO.UK 37

35-38 payroll feature 1_RECRUITER DECEMBER_Recruiter.indd 37

19/11/2020 10:32

Special Report

determination process that works well to alleviate risk from client. It can be a core value-add in the relationship,” Maley says. He stresses that HMRC will be “quite aggressive” in trying to capture tax through the legislative change. And he urges recruiters to seek advice as well as offering it. “HMRC investigations are massively time consuming, complex and draining. We promote having a very substantive audit trail at the outset. “Agencies should be getting outside support. We don’t know how HMRC will police this but investigations are likely to involve the agency so it’s important to be prepared. Seeking third party advice is worth the time and expense.” Sophie Wingﬁeld, interim director of policy and campaigns at the Recruitment & Employment Confederation (REC), warns that some agencies lack conﬁdence in the preparedness of the whole supply chain for the looming changes to IR35. “Unsurprisingly, Brexit no-deal contingency

FIVE STEPS TO PREPARE FOR IR35 CHANGES The REC says agencies should be ready to answer the following questions: 1 Which clients are SMEs and therefore exempt from the new rules? 2 Which workers are working through their own personal service company? 3 How will their clients be making their determinations? 4 Who is in your supply chain – particularly who is the fee payer? 5 What records do you keep on workers?

HOW TO WORK OUT WHICH CLIENTS ARE EXEMPT FROM THE IR35 CHANGES The new rules apply to all public sector clients and to private sector companies that meet two or more of the following conditions:

35-38 payroll feature 1_RECRUITER DECEMBER_Recruiter.indd 38

an annual turnover of more than

£10.2m

more than 50 employees

a balance sheet total of more than £5.1m

“We would urge any agencies that have not yet prepared to do so as soon as possible” SOPHIE WINGFIELD Interim director of policy and campaigns at the Recruitment & Employment Confederation (REC)

planning, as well as managing through Covid-19, have been prioritised over the forthcoming tax changes,” she says. “However, not preparing and falling foul of the rules could have serious ﬁnancial consequences, and we would urge any agencies that have not yet prepared to do so as soon as possible.”

19/11/2020 10:32

Payroll ADVERTISEMENT FEATURE

HOW CAN HIRING FIRMS ACHIEVE EFFECTIVE OFF-PAYROLL COMPLIANCE? The Off-Payroll legislation will take effect in April 2021, so robust compliance is crucial for hiring firms in the private sector and their recruitment partners.

ovid-19 contributed towards a 12-month postponement to the legislation’s rollout and, while some firms have used the extra time to establish rigid compliance processes, others are yet to act. Firms that have been daunted by the task need delay no longer with solutions from service providers that specialise in Off-Payroll compliance.

Meeting the ‘reasonable care’ requirement Hiring firms need to satisfy the legislation’s ‘reasonable care’ requirement when considering the IR35 status of contractors and provide a Status Determination Statement (SDS). The concept of ‘reasonable care’ is understood by most tax experts and HMRC has also published some useful guidance, which includes: Taking care to seek ‘appropriate advice’ to ensure correct tax treatment Conducting thorough status

assessments and preserving detailed records Continuing to monitor the status of contractors throughout each engagement

service that can demonstrate assessment accuracy, showing detailed test data that concurs with tribunal outcomes.

Does the solution take Hirers are required to make a compliance-led informed decisions and approach? therefore show they Off-Payroll compliance isn’t an understand the legislation. issue that can be simply IR35 & Off-Payroll – explained circumvented via an insurance details Hive360’s everything customisable, mobile policy app, Engage. slapped on top of a stakeholders need to know, lip-service compliance process. with chapters dedicated to It’s not possible to simply insure helping hirers and agencies against the non-payment of overcome compliance tax, in the same way that you challenges. cannot insure against Firms will need to committing a driving offence demonstrate that they have say, or breaking any other law. detailed record keeping and Insurance companies will not ongoing monitoring in place compensate if compliance – and that they have taken obligations have not been met. appropriate advice. Adopting a robust compliance-led approach Is the compliance offers the best protection in solution demonstrably the event of an HMRC enquiry accurate? and should avoid a firm’s Even with the best intentions, reputation being publicly hiring firms may fall foul if an dragged through a tax HMRC enquiry deems their tribunal. As the old saying status to be incorrectly goes, prevention is better assessed. This can be avoided than cure. by choosing a compliance Beware of opportunistic

Dave Chaplin is CEO and founder of contracting authority ContractorCalculator and IR35 compliance solution IR35 Shield. He is also the author of IR35 & Off-Payroll Explained.

service providers that offer status assessments that are really designed to steer customers into buying something else.

Ensure that you have effective Off-Payroll compliance Effective Off-Payroll compliance requires consideration of many factors, all of which have been accounted for by IR35 Shield and its suite of compliance products for businesses, tax professionals and contractors. Built by a team with a two decade obsession with IR35 and over 25 years’ software development experience, IR35 Shield sifts through vast amounts of data to help you reach decisions on a grand scale in real-time whilst bringing speed, scalability, consistency and accuracy into the complex world of employment status case law. It means those in the supply chain using IR35 Shield can run reports, gain insights and identify problems quickly. IR35 Shield continues to innovate and set the standard as the most robust compliance-led solution on the market. WWW.RECRUITER.CO.UK 39

39 IR35 advertorial_RECRUITER DECEMBER_Recruiter.indd 39

19/11/2020 10:33

Special Report Report Special ADVERTISEMENT FEATURE

RE-IMAGINING PAYROLL WILL PROTECT AGENCY PROFITS Strategic payroll, off-payroll rules, HMRC compliance, IR35 – a heady mix and commercial burden for recruitment businesses in today’s new world of work. But David McCormack, CEO of outsourced PAYE payroll specialists Hive360, believes strategic payroll is the profit-protecting solution.

oday’s world of work is placing unprecedented demands on agency payroll. Add to this the growing complexity of compliance, expansion of IR35 rules, and mounting pressure on agencies to look after workers’ welfare, now is the time to embrace a new, commercial approach using a strategic payroll solution - that also protects profits.

All change: April 2021 Workers providing similar services to employees, and who would therefore be classified as an employee if working directly for the client, pay similar tax and NI contributions. The government introduced IR35 rules to ensure fairness across all, and in 2017, implemented additional rules for ‘Off Payroll’ workers, which were rolled out to only the public sector. But from April 2021, this will change. The classification of worker status will shift from the intermediary to the client, and 40 RECRUITER

the rules extend to the private sector – meaning organisations engaging workers through intermediaries must identify whether the worker is classified a direct employee for income tax purposes. In part, the changes are designed to address concerns that some intermediaries are not complying with IR35 but reducing due payments of tax and NICs. Under the new rules, the business – or agency paying the intermediary – must deduct income tax and NICs from the fees paid to the intermediary, and account employers’ NICs, and apprenticeship levy if relevant, as if the fees were salary payments, to comply with IR35 regulations. Standard IR35 rules will continue to apply to intermediaries providing services to private sector clients that are small or have no UK connection in a tax year.

Workers supply chain Recruiters should start by defining their role in the labour supply chain role: Client: also known as the engager, hirer or end client, and the organisation which is or will receive the services of the worker/contractor. The client will need to make a status determination to identify if IR35 rules apply, and is responsible for advising the worker, agency or other labour provider if the rules apply and the reasons why. If there is no one else in the supply chain, the client will also be the fee payer. Agency: the employment/ recruitment agency (or agencies, as there can more than one) that supplies a worker to a client, and may pay a worker’s intermediary (fee payer), depending on other parties in the supply chain. Fee payer: pays the worker, limited company or other intermediary. Is also directly above the worker’s limited

company in the supply chain, and could be the client or agency. Is responsible for deducting tax and NI contributions, and paying them to HMRC, and should have a copy of the status determination from the client. Intermediary: usually the worker’s own personal service company, but could be a partnership or individual. Worker (contractor): the individual providing services to the client through an intermediary.

Who decides? The client is responsible for establishing whether Off-Payroll rules apply based on a private company classification: Small/micro companies (less than two of: below 50 employees, turnover below

DECEMBER 2020

40-41 hive advertorial_RECRUITER DECEMBER_Recruiter.indd 40

19/11/2020 10:34

Payroll

HIVE360 Outsourcing payroll is a strategic decision that will address wider policies including efficiency, cost saving, staff retention, productivity, employee engagement and wellbeing. Hive360 provides compliant and reliable PAYE payroll support and employment administration that reduces overheads and improves operational efficiencies. Hive360 falls outside of the Intermediary definition because: It is not an associated company of the client. None of its workers has any interest in its business (no shares). Its management and control are separate to and uninfluenced by the workforce. All workers are engaged under PAYE contracts (either of employment or service). Unlike some outsourced payroll providers, Hive360 does not operate any form of tax avoidance or manipulation, which puts a business at ongoing risk. Anyone paid through Hive360 is done so under PAYE.

ADDED BENEFITS

Hive360’s customisable, mobile app, Engage.

£10m, net assets below £5.1m) – exempt and responsibility lies with the intermediary. Client medium/large companies (two or more of: above 50 employees, turnover above £10m, net assets above £5.1m) – the client is responsible. Government guidance will help determine if IR35 rules apply – but they will if a worker provides services to a client through an intermediary and would be classed an employee if contracted directly.

What next? To guarantee IR35 compliance, recruitment businesses can either: 1. Do nothing, and expose the business to crippling fines and taxes; 2. Carry on as they are, but let the fee payer deduct all appropriate tax and NI contributions; 3. Only engage with suppliers not caught by IR35 and off payroll legislation; 4. Convert all workers to in-house PAYE; or 5. Outsource to a PAYE payroll solution provider.

Recruiters outsourcing temporary workers’ PAYE payroll to Hive360 report savings of £100 or more per worker in the first year. The Hive360 payroll solution includes tools that support employee engagement strategies, to deliver communication, wellbeing and lifestyle benefits, free of charge to the worker via our Engage app. Engage includes 24/7 confidential access to counsellors and GPs, especially important at this time – during the first week of Covid-19 lockdown, we recorded an unprecedented 273% increase in demand for mental health support services, and 102% increase in the use of the GP service. Communication with a workforce is essential, and typically clients using Engage record employee engagement levels of over 80%. Hive360 is a specialist employee benefits and outsourced payroll provider. For more information: www.hive360.com

WWW.RECRUITER.CO.UK 41

40-41 hive advertorial_RECRUITER DECEMBER_Recruiter.indd 41

19/11/2020 10:35

Special Report

IR35 COMETH: ARE YOU PREPARED? With IR35 reforms just four months away, one recruitment firm tells Recruiter the steps they’re currently taking to make their clients compliant for this notorious piece of legislation. It’s time to start holding clients’ hands, as Christian Koch reports

42-46 feature 2_RECRUITER DECEMBER_Recruiter.indd 42

19/11/2020 10:35

Payroll

fter the Christmas lull, comes the chaos. If any recruiting professional is looking forward to effortlessly easing their way into work on 4 January, coasting their way through the month’s tasks without troubling their Prosecco-addled brains, perhaps even taking a sickie sometime around Blue Monday, they’d probably need to think again. The ﬁrst few months of 2021 are set to be a brutishly busy time for recruiters. In-trays are set to be inundated with applications, thanks to the

UK labour market having been clobbered by Covid-19 (unemployment will rise from 1.5m to 2.6m, according to the Bank of England). The end of the Brexit transition period on New Year’s Eve may spark staff shortages due to changed immigration rules, while hiring from Europe won’t be as easy as it once was. If that wasn’t enough to make recruiters crawl back underneath their duvets until springtime, then consider this: it’s the ﬁnal leg of the journey to IR35 implementation with private sector employers. “It’s going to be a nightmare,” says Leslie Owusu, director of London-based IT recruitment agency Gazelle Global, who has been preparing his team for IR35 since late last year. “When I spoke to clients in early 2020, many had a lack of understanding about how IR35 works. My feeling was, we’re going to have to hold clients’ hands through this.” From 6 April, the rules get rebooted, with larger organisations in the private sector now responsible for determining whether their contractors are ‘inside’ IR35 rules (subject to PAYE) or ‘outside’ (operating as a genuine company). As such, recruiters can expect to be busy communicating IR35 changes to clients and helping them become compliant. The new rules affect private ﬁrms with a £10.2m+ turnover or with more than 50 employees. In fact, although it’s the

responsibility of the hiring company to check the employment status of its contractors, all recruiters need to ensure their clients are on the road to compliance. Fail to do that, and your recruiting agency – along with the hiring company – could be liable for any unpaid tax and National Insurance Contributions (NICs) if HMRC ﬁnds a worker has been incorrectly classiﬁed. “If there’s an investigation [by HMRC], then the hiring company and everybody in the supply chain will feel it,” says Ishari Martenstyn, Gazelle Global’s head of contracts & compliance. “If the fee-payer [hiring company] can’t pay, they’ll come down the supply chain to retrieve those funds from the recruitment company or hirer… There’s no option of not being compliant here.” Martenstyn continues: “At the moment, it’s the liability of the contractor to decide whether their working arrangements fall inside or outside IR35, plus to pay the correct taxes and NIC. “But from April, all

“It’s going to be a nightmare. When I spoke to clients in early 2020, many had a lack of understanding about how IR35 works” LESLIE OWUSU Director of London-based IT recruitment agency Gazelle Global

necessary tax and NICs will be deducted before the ﬁnal payment.”

Role of the recruiter What’s the recruiter’s role in all this? According to Martenstyn, recruiters “need to keep the client well-informed, make sure they understand exactly

In-trays are set to be inundated with applications as unemployment will rise from

1.5m 2.6m

to , according to the Bank of England

IM AGES | SHUT T ERSTOCK /NOUNPROJEC T

WWW.RECRUITER.CO.UK 43

42-46 feature 2_RECRUITER DECEMBER_Recruiter.indd 43

19/11/2020 10:35

Transform the way you bill and pay. With the ability to help you comply with IR35, our Pay & Bill service is specially designed to reduce the back office burden for recruiters. We handle your timesheets, expenses, billing and payroll – using our tailor-made InTime software. Visit rsmuk.com and search for recruitment pay and bill or call 07852 124 355 to arrange a free demo.

Quote RSM2020 to get advanced features FREE for one year Experience the power of being understood. Experience RSM | rsmuk.com

The UK group of companies and LLPs trading as RSM is a member of the RSM network. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting ﬁrm each of which practises in its own right. The RSM network is not itself a separate legal entity of any description in any jurisdiction. The RSM network is administered by RSM International Limited, a company registered in England and Wales (company number 4040598) whose registered oﬃce is at 50 Cannon Street, London EC4N 6JJ. The brand and trademark RSM and other intellectual property rights used by members of the network are owned by RSM International Association, an association governed by article 60 et seq of the Civil Code of Switzerland whose seat is in Zug.

REC.Dec20_052.indd 52

18/11/2020 18:35

Payroll

what the obligations are, and to hand-hold them through the process”. To deal with client concerns, Martenstyn recommends “being like a sponge at this time. Keep up to date with all the HMRC guidance, but also trust industry experts. Read everything”. Communicating to clients – as simply as possible – is essential. Gazelle Global has created a dedicated online portal online and sent out informative ‘client packs’ on email. As Martenstyn says: “[As recruiters] we’ve got to be careful. We can’t advise clients exactly what to do because that would make us

COULD IR35 BE POSTPONED ONCE AGAIN? The reforms had a trial run in the public sector in 2017 and were originally set to be rolled out to private companies last year, which was postponed due to Covid-19. Three reasons why the IR35 changes might not be a reality until 2022 or even later… 1 Unemployment woes. The second national lockdown in November and extension of the furloughing scheme until March is set to disrupt employment. The UK’s 2.1m self-employed army faces a “triple whammy” of uncertainty from Brexit, Covid-19 and the IR35 reforms, according to IPSE (the Association of Independent Professionals and the Self-Employed). The prospect of more jobless might force HMRC to postpone. 2 HMRC has also admitted there is some confusion surrounding the reform draft (it defines umbrella companies as ‘intermediaries’), which could prolong its implementation. 3 The tax position of many contractors has also become more nebulous over the past year, with many of them now working from home and using their own (rather than the hiring company’s) equipment. Check the latest IR35 info at gov.uk, which has an Employment Status Manual, the free (but controversial) ‘check employment status for tax’ CEST) tool, plus regular webinars.

“[As recruiters] we’ve got to be careful. We can’t advise clients exactly what to do because that would make us liable if something goes wrong” ISHARI MARTENSTYN Gazelle Global’s head of contracts & compliance

liable if something goes wrong. It’s about giving them enough information to make decisions, create a status determination statement (SDS) and inform their contractors. All our client packs are doing is informing everybody in the chain what they should be looking out for.” When it comes to contacting clients, Martenstyn recommends adopting a “phased approach”, starting with those businesses in highly regulated industries such as ﬁnancial institutions or

large organisations with a high volume of contractors. Recruiters also need to deal with any questions clients may have about the Status Determination Statement (SDS), which determines whether their contractor is operating inside or outside IR35 rules, the criteria that could indicate whether a solo trader is ‘outside’ IR35 include whether they own their own equipment, work for multiple clients or market their services via a professional website. As 6 April looms,

Martenstyn suggests sending reminders to clients, plus keeping them updated about any IR35 legislation. And with clients expected to lose money by paying taxes for their contractors, a difficult conversation about renegotiating rates might be necessary too. To ensure they’re IR35-ready internally, Gazelle is taking steps to keep their staff up to date on the latest information. “We want to keep everybody informed and ensure any questions from clients and contractors are answered,” says Owusu. “We don’t want to end up with a situation where these questions are asked after a contractor has been hired.”

Contractor challenges IR35 will throw up additional challenges for recruiters in the months ahead, he adds, especially when it comes to working closely with their contractors. “You need to think about the mindset of a contractor,” says Owusu. “When they realise IR35 is coming into effect, they’ll be concerned they won’t be earning the same amount… It’s about trying to train their minds that it won’t necessarily work like that going forward. There’ll be some deductions and they’ll need to look at it from different perspectives.” Owusu continues: “If the average contractor has a breaking point, it’ll be the moment he/she hears that their pay is being reduced. “Generally speaking,” he says, “contractors are happy to forgo employee beneﬁts because they like

WWW.RECRUITER.CO.UK 45

42-46 feature 2_RECRUITER DECEMBER_Recruiter.indd 45

19/11/2020 10:36

Special Report

the ﬂexibility and money they can earn. The IR35 extension means it’d make much more sense for them to become permanent. What’s the point of having none of the beneﬁts (sick pay, etc) of employees, but all of the restrictions?” For employing

organisations, the prospect of paying increased taxes could result in their putting an employment freeze on contractors, or even ditching their existing ones. Morgan Stanley, Barclays and Lloyds have already announced they won’t take on any more contractors unless they’re

paid on PAYE terms or through an umbrella company. Unless IR35 gets delayed once again (see box, p45), recruiters can expect to spend the next few months informing clients about the IR35 extension and the importance of auditing

their contractor workforce. “You need to show you’ve done everything you’ve can and taken reasonable care with the client,” says Martenstyn. “Every single person in the supply chain has an obligation to ensure compliance. If not, you could be liable…”

ADVERTISEMENT FEATURE

BEATING THE DEADLINE Access Pay and Bill software can help recruiters get ready for IR35 What is the IR35 question you are asked most often? The biggest question is, “what’s involved in implementing IR35 in the ever-changing world of temporary recruitment?” How do you implement that on a weekly basis with an irregular workforce when it’s got to be 100% right?

Is there any difference between how IR35 is being applied to the private sector? We’re in a fortunate position given our early development of Access Pay and Bill to cater for the public sector off-payroll requirements. Extending this capability to the private sector means going forwards we will 46 RECRUITER

have one simple checkbox for IR35 legislation to drive the calculation to add the taking of taxes at source.

everyone understands where responsibilities lie.

What are the roles of the umbrella company, the recruitment agency and the end-user? The umbrella or managed agency is responsible for the appropriate tax deductions and reporting to HMRC via RTI. You should start talking to all the parties now to be sure everyone is ready, understands what is needed and who is responsible at every stage.

What steps would you advise agencies to take in the coming months to ensure they are prepared for the new rules?

What is the most important aspect of the new rules for a recruitment agency to keep in mind?

It’s really important that you are assessing your workers right now. With our software, you can be making that determination early, setting up the system well ahead of the April deadline. You also want to plan your communications with both your contractors and customers. Agencies working with umbrellas and managed agencies need to ensure that

IR35 is essentially a tax at source piece of legislation. It’s now our job to ensure your contractors are paying up front, to collect that tax and give it to the Treasury. Plus we have to make sure we report it all correctly, to the HMRC as well as to our respective boards. Access Pay and Bill obviously handles all of IR35, together with the entire payroll

Ben Oliver is the Product Manager for Access Pay and Bill With over 20 years’ experience in product management within the recruitment sector, he has spent loads of time with customers on-site such as Adecco, Randstad, Impellam and Capita. He has introduced automation to Access Pay and Bill delivering efficiency and productivity gains of over 25%.

billing and accounts pre-processing. And it does it at scale. It’s certainly the only product I would want to be using to implement IR35. https://www.theaccessgroup. com/recruitment/software/ pay-and-bill/ Tel: 0845 345 3300

DECEMBER 2020

42-46 feature 2_RECRUITER DECEMBER_Recruiter.indd 46

19/11/2020 10:37

REC.Dec20_055.indd 55

18/11/2020 18:37

Special Report Report Special ADVERTISEMENT FEATURE

his year has been tough for hirers, employers, recruiters, contractors and freelancers. Uncertainty over the off-payroll IR35 reforms in the private sector, a raft of amendments to legislation and a global pandemic that has all but decimated the job market leaving everyone wondering whatever will happen next. Oh yes – and Brexit! IR35 has been with us since 2000. However, it has taken until recently for the legislation to catch up with modern working practices. Despite several strong challenges and a damning report debated in the House of Lords, the off-payroll reforms received royal assent in July and will come into force in April 2021. Whilst the delay was welcome news for some, some businesses had already started their IR35 strategies, and as such those organisations who are looking to hire a workforce quickly post-Covid are likely to be better prepared. Others have adopted a more risk-averse approach by imposing blanket determinations on personal service companies (PSCs). Not all businesses that are excluding PSCs are operating a blanket approach, but the stakes are high, and choices are limited to employing people permanently, PAYE contracts or employing through an umbrella company. With many organisations looking at restructuring and only focused on key projects, the need for flexibility primarily made up of contractors and freelancers will be crucial to a quick start when the recovery begins. With the number of PSCs shrinking, the risks from non-compliant umbrella 48 RECRUITER

ENGAGING CONTRACTORS IN THE ‘NEW NORMAL’ Janet De-Havilland highlights the changes for recruiters in the new IR35 environment companies and a diminishing outside IR35 even today, it is contracting talent pool, hiring littered with language for an will be much more difficult. The employee, not a business ability Hive360’s to fill interim customisable, roles ormobile providing app, Engage. a service. This level finding the right capability to of detail will become very deliver measurable and relevant in a challenge by time-bound critical projects HMRC and will need to could become more difficult change if recruiters are to be for most. taken seriously by these sought-after contractors who Challenges are genuinely in business, as The recruiter’s hiring process they cannot afford to for contractors has barely associate themselves with changed in decades except recruiters and end clients who for the embracing of don’t understand the technology. However, the IR35 difference. reforms presents their biggest challenge yet, as this process Compliance has always centred around The onus for IR35 compliance hiring employees for jobs. To sits with the end client and/or engage and introduce a fee payer to determine the business to the end client will status. This also means that require wholesale change and non-compliance within the re-education. If you look at a supply chain will impact on dozen job advertisements for the end client by way of

penalties for not taking “reasonable care”. For many, this additional administrative burden and risk is too much to focus on, leading them to opt for the easy option. Ultimately, the time and money spent, both in finding the right talent and the associated risks with the hire – as HMRC’s enforcement focus will be on the end client and not the contractor – will lead to a reduction of opportunities for those outside IR35. The primary focus for the end clients will be on the survival, stability and growth of their own business.

Janet De-Havilland is CEO, Pendragon Consultancy

MARCH 2018 DECEMBER 2020

48 pendragon_RECRUITER DECEMBER_Recruiter.indd 48

19/11/2020 10:38