How IR35 works for hirers and how ENGAGE can help
The use of self-employed contractors or PSCs (Personal Service Companies) affords businesses vital flexibility and is, in many cases, key to growth. It can help better align labour costs with projects and ultimately maintain tighter cost control.
There is also flexibility for workers; self-employed individuals have more control over the projects and hours they take on, and those with the most in-demand skills often exclusively work on a contract-by-contract basis.
However, with the introduction of IR35 into the private sector, engaging temporary workers is about to change. With tougher regulations up ahead, hirers must maintain more comprehensive and accurate compliance records than ever before. Failure to do so could lead to severe consequences, including reputational damage, legal fines or even imprisonment.
What’s expected of end hirers post-IR35?
At registration, hirers must indicate whether they determine the worker to be self-employed or not, based on the nature of the engagement. This is called a Status Determination Statement (SDS). The worker must agree with the SDS then complete an IR35 questionnaire demonstrating that they understand the engagement expectations.
For a worker to be determined as self-employed, the engagement must reflect that the hirer is a client and not an employer, that there is financial risk in the contract, and that the worker will have no employment rights. The hirer must also be able to evidence that they do not supervise, direct, or control the contractor’s manner of work. Should the engagement fail to demonstrate this, the worker will be deemed an employee for all intents and purposes be taxed via PAYE.
Hirers must be prepared for the possibility that SDSs may be challenged. For this, it’s essential that they maintain the correct contracts and a chain of supporting evidence against the ‘actuality’ of contractual terms. This is something which they must do on an ongoing basis. Whilst it can be a tough task, neglecting to do can result in serious liabilities should HMRC decide to challenge an SDS. With ENGAGE, however, it’s a much simpler process.
How ENGAGE’s IR35 solution can help
ENGAGE provides a unique and comprehensive IR35 compliance solution with automated risk management across the whole labour supply chain.
We assist workers, recruitment agencies, umbrella payroll intermediaries and end hirers in managing risks whether an engagement qualifies as genuine self-employment or not. Our IR35 Risk Management tool automatically prompts workers, hirers, and other required parties to enter all supporting evidence for self-employed engagements and ensures simple and effective compliance for all.
ENGAGE keeps all supporting evidence visible to the worker, hirer, and supplier (also, in cases where a recruitment agency is acting as an employer in practical terms, they are granted the same access as a hirer would have).
Any party can easily contribute further anecdotal evidence towards a self-employed status and instantly update the whole labour supply chain in real-time.
The platform allows:
- changing contract rates
- changing assignments,
- working self-determined hours
- simultaneous contracts
- sub-contracting
- unpaid absence
- retentions held back etc.
…to be managed in real-time. The platform automatically prompts all relevant parties, ensuring every player in the supply chain is well informed.
Failure to complete these requirements triggers a ‘Not OK to Pay’ status. This indicates that the required information has not been received to ensure that the worker can be paid compliantly without exposing the end hirer to risk. It’s also an essential process to maintain a chain of supporting contractual evidence, and on ENGAGE, it’s easily completed.
Aside from this, there is constant monitoring of data to ensure quick and effective risk detection. Where potential liability is detected, relevant parties are notified and presented with a warning in order for appropriate remedial action to be taken. For example: a contract runs too consistently, is too long, or the role is too junior to be realistically unsupervised.
Also, where ‘changes to employment’ occur, each instance is flagged and added as evidence that the hirer is proactively adhering to regulation: refusing self-employment and offering PAYE alternatives where required. The system can produce a structured and comprehensive log of IR35 data such as this for each worker or organisation. This can be downloaded in CSV format at any time and used as evidence of compliance should an HMRC enquiry occur.
In conclusion…
Though compliance requirements are about to get tougher, ENGAGE provides a leading solution to keep you and your labour supply chain one step ahead of IR35. With full transparency and automated risk detection, you can ensure that you don’t accumulate risk due to human error or poor visibility. This means you, your suppliers, and your workers can continue to enjoy the flexibility of contracting, even after the reforms: all of the benefits, and none of the risks, ensuring fool-proof compliance long-term.