Details correct at time of publishing.
What Procurement must now consider in managing IR35
The Chancellor of the Exchequer has announced that the Off-Payroll Rules[1], rolled out to the UK public sector in 2017 and the private sector in 2021, are to be rolled back. This means that from April 2023, it will no longer be the responsibility of the client to determine whether a worker, provided off payroll and operating through their personal service company, is self-employed (outside IR35) or employed for tax purposes and subject to full PAYE tax on their remuneration (inside IR35).
Organizations had made sweeping changes to their processes to accommodate the Off-Payroll Wor
king rules – from assessing their populations to communicating down supply chains to amending contracts. Process maps were created, roles were advertised as either inside or outside IR35, and many organizations were even investigated by HMRC for compliance with the legislation (some landed eyewatering fines).
Rolling back the Off-Payroll Rules may on the surface, seem to be a godsend to organizations – but is it? And what should procurement do as a result?
It’s important to remember that IR35 itself is still in place, so the responsibility for determining whether someone is inside IR35 or outside IR35 will fall to the worker from April 2023 as was before the Off-Payroll Working Rules were implemented. However, because of the Off-Payroll Working rules, organisations are now fully aware of what IR35 is and how to construct engagements contractually in line. Will they now turn a blind eye to that knowledge?
The Criminal Finances Act 2017 still applies, which has a specific section on the responsibility to prevent the facilitation of tax evasion [2]. Therefore, ethical organizations will still consider the right way to contract to ensure that taxes are paid where necessary. The Check Employment Status for Tax (CEST) [3] tool should still be available to assist.
Some organizations may see this as an opportunity to cease everything IR35-related. Some workers may now insist on being paid via their personal service company, or they won’t work for the client. Some workers, currently paid by umbrella companies after having been determined inside IR35, will leave their roles in pursuit of other outside IR35 opportunities – after all, it would open them up to tax risk from HMRC if they were suddenly declaring themselves outside IR35 after being paid PAYE at an engagement at the same client.
Practical things Procurement can do before April 2023 include:
- Reconvene the project team. Bring in your tax team to determine how you want to manage the residual organizational risk given the Criminal Finances Act.
- Decide whether you will, from April 2023, advertise roles with an IR35 designation on it at all. Before the Off-Payroll Rules were implemented, this was standard practice; however, if you know a role would be inside IR35 and intend to contract in that manner, it would be sensible to advertise it accordingly to signal to the market. Some organizations, however, may choose to stay silent and allow the worker to self-determine to boost the attractiveness of the organization as a place to work.
- Decide how you will manage challenges from workers currently engaged on assignment who were determined as inside IR35. Would you allow workers to return to being engaged through their personal service company if you had previously moved them onto a PAYE arrangement? What contracts would need to change? When would notice have to be given under one assignment, and when would the final timesheets be submitted? Or, if you don’t allow challenges under the expectation that the assignment hasn’t changed in nature, how will you communicate that to workers?
- Communicate the position to hiring managers. Arm them with an FAQ document for workers who want to revert to a previous style of contracting. Explain what is (or is not!) changing and include contacts where they can get further information and support.
- Review your policy for clarity. As the obligations will change in April 2023, the policy should be reviewed by your project team.
- Adopt and manage a risk register. Like the implementation of the Off-Payroll Rules, there is a risk of attrition, which will need to be managed.
- Manage the retention of records accordingly for the time the Off-Payroll Rules were in force. It’s still possible for HMRC to investigate your organization for tax compliance for the years the Off-Payroll Rules were in place. Make sure you keep your records for four years following the completion of the assignment, or April 2027, whichever is sooner.
It remains to be seen whether Off-Payroll Working and IR35 will be revisited again in the event of a leadership change post-election. But like everything, preparation and clear communication will be key to success.
[1] https://www.gov.uk/guidance/understanding-off-payroll-working-ir35
[2] https://www.gov.uk/government/publications/corporate-offences-for-failing-to-prevent-criminal-facilitation-of-tax-evasion
[3] https://www.gov.uk/guidance/check-employment-status-for-tax
