Introduction
In 2000, IR35 was introduced to tackle alleged abuse of tax by contractors working via their own Personal Service Company (PSC)
The liability fell with the contractor to ensure they were paying the right amount of tax. The effectiveness of the legislation has been in question ever since.
In 2017, HMRC introduced the new off-payroll legislation to improve effectiveness, starting in the public sector and now in the private sector.
What is the new off-payroll legislation?
The legislation is highly complex but, put simply, the decision & liability falls on the end client to ensure each contractor is paying the right amount of tax. When deemed inside IR35, it will be the responsibility of your agency to ensure the contractor pays the correct tax.
If incorrectly deemed outside of IR35, the liability will fall with the end client. If deemed inside IR35 but your agency pays the PSC gross funds, the liability falls with your agency.
Once implemented, any temporary role should come with a status determination statement (SDS) provided by the end client.
How could it affect recruitment agencies?
Extra liability – To ensure inside IR35 contractors via their own PSC pays the right level of (what?), your agency will need to deduct tax & NI at source.
Potential extra costs – Employment overheads will need to be paid by your agency if a contractor is deemed inside IR35 via their PSC.
Extra admin – If your agency is involved in the supply chain, your agency must also receive a copy of the relevant SDS and advertise roles accordingly.
Potential loss of contractors on books – Experienced Outside IR35 PSC Contractors will see a drop in their net pay if deemed inside IR35 going forward. This drop in pay may lead to contractors looking at their options.
How can recruitment agencies prepare?
Understand the new legislation and payroll options – With every change there is an opportunity. An agency who understands the legislation, prepares their staff, their clients and contract workers properly will be better placed than an agency who doesn’t.
Once understood, educate your clients – Your clients will need to provide an accurate SDS for each contractor working via their PSC and for any future temp role. Alternatively, they may decide that all
contractors can’t be paid via a PSC. Either way, your education and alternative payroll options will be needed.
Be proactive and prepare current workers and new candidates – Proactive communication from your agency gives deemed inside PSC contractors time to prepare their finances to ensure they can cover bills going forward. No one will be happy to see a drop in income but an overnight shock will only add to the frustration.
Work with a commendable Umbrella company – You should expect the umbrella company you work with to be an expert in the new legislation. Use their expertise to educate your agency and keep up to date with any relevant news or updates.
Protect your agency – To avoid any financial implications in the future and damage to your agency’s reputation. It is imperative that your agency works with a compliant umbrella company and not an off-shore tax avoidance scheme.
How can SLS help its agency clients?
We can help all our client’s contract workers– With an Umbrella PAYE service, CIS service & accountancy practise within the group, SLS can help all of your contract workers regardless of their status determination.
SLS are experts in compliantly paying contractors – SLS have extensive experience in payroll services built over the years by compliantly paying thousands of contractors every week, 52 weeks of the year. You can have peace of mind that no money is going off-shore.
SLS are experts in legislation – Let us educate you on the new legislation and keep you up to date with any changes. Presentations available upon request.
What to do next?
Whether an existing agency client with questions or a new prospective client, give your account manager or Kevin @ SLS a call on 01992668333 / 07487594116 or email kevin@slspay.co.uk.
Visit our website, or sign up for our professional service today via our Contractor registration form