IR35 – Where there is visibility there is less risk

Dec 13, 2019

IR35 – Where there is visibility there is less risk

 

Remember to KISS. Every day. It’s an ethos I was introduced to very early in my career. Keep it simple (stupid). Life tends to trend, go full circle. It certainly seems that way right now for sure. Let me tell you why. I’ve been in recruitment for nearly a decade, in many guises. Providing contractor solutions, accounting services, legal services, finance, back office and now software.

 

Before I ‘fell’ into recruitment (as did so many before me), during the later part of my 18 year career in the regulated industry of Financial Services, I was part of a number of initiatives looking to create an end-to-end technology solution to manage compliance, provide transparency and reduce duplication (and paper) in the intermediary mortgage market (applicant, broker, packager, lender). The holy grail!

 

It took over 15 years for that to be achieved in that particular market sector. Fast forward a decade and put the digital age on hyperdrive and here we are…When I stepped into recruitment after the crash in 2008, parallels were evident to me immediately (worker, intermediary, agency, hirer).

 

I’ve been meeting with a lot of end hirers recently. More than ever over the last decade. I’ve spent hours discussing different views on managing perceived risks up and down the supply chain, with a fixation on…dare I say it…IR35. The vast array of responses has been……affirming.

 

The conversations with suppliers equally so.

 

Unsurprisingly, there appears to be a void of understanding of the legislation and therefore a plethora of views on what this means, what the risks are and more importantly, how to manage the risks. Coupled with the fact that the industry stalwarts have, well….seen it all before.

 

To some degree, I understand this sentiment. Although I don’t necessarily agree in this case. You see in this case there is data…..lots of data. The government has been harvesting it in warehouses for years. All through RTI and the intermediaries quarterly submissions.

 

As such, this could well be the biggest shake up to the way in which the government regulates the labour supply market ever to be seen. Especially now they seem to be covering all bases and having the information at their fingertips to pinpoint potential targets of tax avoidance.

 

Any member of the supply chain with a relaxed view on compliance, a “copy and paste” approach to contractual terms, a “one size fits all” view of engagement type, or simply an “it doesn’t affect me” view, may well get their fingers burned and possibly bring the house down too.

 

Pleasingly, now more than ever it seems in many sectors, there is a real need (and desire) for all parties in their respective supply chains to start looking at their working practices and filling in the age old trap doors that have luckily never been opened.

 

With the recent bouts of new legislation released into the recruitment space: Onshore/Offshore Intermediaries, Criminal Finance, T&S, Modern Slavery, all in the mix now to potentially trip you up, the list is long enough. However, it does seem to be the latest IR35 reforms that are ‘doing the trick’ (according to government figures) in helping the UK labour market get it’s house in order and collecting a chunk of revenue to boot. Great headlines.

 

If (or when) the IR35 reforms come into the private sector, many will take the view that workers operating through PSC’s and taking tax advantages as a result have had it good for long enough and will need to accept the tax liability now. However, I believe that there is great need for education here. With hirers and workers. Education, visibility and control are key components to managing the risks that IR35 poses. A pragmatic and diligent approach to assessment under the legislation and a system to facilitate this is a ‘no-brainer’. There are genuine contractors that should absolutely have the advantages of legitimately operating as Personal Service Companies, if there is a framework to allow this. Our economy will need this, given the political and economic landscape and complexities ahead.

 

As much as IR35 reforms presently serve as a distraction – especially for End Hirers, when the work is done and the systems, processes and tools are deployed, we can all get back to doing our day jobs. But for now, action is needed.

 

Whatever your thoughts, there is a complex myriad of risks to all the legislation out there affecting the labour supply chain. However, you can KISS the headaches goodbye (or at least the migraine, there may be a little hangover to cure) with a simple solution that will help manage and mitigate risks to ALL members of the supply chain in relation to most, if not ALL of the risks. A solution that can provide transparency, control, accessibility and clean data. A solution that aligns all of the parties of ANY supply chain in the UK.

 

One of the biggest challenges is managing the risks around whether tax is collected or not, when the determination is that it should be. That the HMRC get their revenue. It has always been the case that no one in a supply chain (other than the entity calculating the gross to net payment and submitting the RTI to the HMRC) has visibility of it.

 

So, a real and proper solution should allow the End Hirer to have this visibility shouldn’t it? How else is the Hirer going to see (or evidence) that the tax is deducted and paid to HMRC? Relying on contractual obligations and an audit process may help you out, but wouldn’t it be much easier to have all that information visible and accessible in real time and at the touch of a button? No one need to sweat then, when the HMRC come knocking on the doors of any supplier, or hirer….and they will likely come knocking at some point.

 

What is that solution? I hear you ask. Well, there is a solution that facilitates and supports this through the entire supply chain. Using data only once. A solution that gives the hirer the visibility of ALL parties in their supply chain, however truncated. A solution that can provide visibility, from the Vacancy to the payment of the candidate…..whatever payment method is deemed as being appropriate, or acceptable. The solution is free to end hirers and easily implemented. The solution is Engage.

 

The biggest problem in managing risk of all kinds is not having sight or access to the information that enables parties to identify the risks. Where there is visibility, there is less risk.

 

Under the IR35 reforms for example, if a Hirer makes the determination that PAYE is to be deducted, how does the hirer know this is being done, or indeed have sight of it? Unless you are able to have access to real time information, you may never know. There are many different payment models in the market. Not all treat the income as earned and fully taxable.

 

A policy and system to manage the risk is one thing. Terms and indemnities will go some way to offer reassurance to hirers and vendors. The size and pedigree of the intermediary will also offer additional comfort (possibly), but without all parties using the same data platform and removing the possibility of failure or worse, fraud, how well can you sleep at night…?

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