IR35 reform rules – are you ready?
09 July 2019
You will no doubt already be aware of the extension of the IR35 reform rules to the private sector.
This will have a significant impact on sectors that use large numbers of contractors to perform a range of services, in particular the insurance industry.
- The new rules will require businesses to assess whether IR35 applies to any contracts it has with any PSCs, whether directly hired or via other third parties. If it does then a tax deduction from any payments made under the contract will be necessary and the business will also suffer Employers NIC and Apprentice levy costs (if applicable) on the payments.
- A potential 14.3% increase in operating costs, and both worker and engager will be impacted. Whilst we have yet to see whether the public sector rules will be modified before being introduced into the private sector, we don’t anticipate significant change.
- It’s a common misconception that IR35 automatically applies but this will depend on the fact pattern for each contract. HMRC has on-line tools that can assist in an IR35 review but our experience is that a more in-depth look is often required to establish the precise impact on your business.
Other implications – the Corporate Criminal Offences of Failure to Prevent Facilitation of Tax Evasion (‘CCO’)
Since 30 September 2017, it has been a criminal offence for corporates to fail to prevent the facilitation of tax evasion – and this applies to all businesses and all taxes – there is no de minimis. The use of off payroll workers is known to be an area of focus for HMRC under the CCO legislation. A failure to consider the new IR35 rules could bring a business within the scope of the CCO, if HMRC were to conclude that the business was turning a blind eye to failings under the new regulations. A criminal prosecution would result in an unlimited financial penalty as well as significant reputational and regulatory impact.
How can BDO help?
Our experience in the public sector has helped us to develop a 3 stage strategy to minimise the impact of the new IR35 rules:
- Help identify what contracts may be at risk.
- Assess both the potential financial and operational impact on your business.
- Implement changes that will minimise the impact of the new rules and build a robust compliance structure for the future.
Our experience of helping organisations consider the potential impact of these new rules has highlighted that this is a complex, involved and often time consuming process, with many organisations finding that their use of Off-Payroll Labour (“OPL”) being far more extensive than first thought. There is no time like the present to begin looking at this area to identify the use of OPL, review supply chain processes, consider compliance obligations, update contracts and implement new contingent labour procurement procedures. BDO have considerable experience in supporting organisations understand the tax/NIC complexities of using OPL and can help with this significant change.
We can also help you in assessing the potential risks to your business under the CCO legislation (and not solely in relation to the use of off payroll workers). We have worked with in excess of 170 businesses across all sectors and are happy to have an initial conversation with you about the ways in which you can comply with the CCO legislation.
If you have any questions please contact Thomas To, Jacqui Roberts & James Egert