Recruiters IR35 Strategy Crucial for Keeping Contractors Outside IR35

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Recruiters IR35 Strategy
Recruiters IR35 Strategy

Recruiters IR35 Strategy

It is now clear that recruiters IR35 strategy will be really important in keeping contractors outside IR35 after the IR35 reforms. Normally contractors and client companies don’t have contracts with each other. However, recruiters have contracts with both. It is these contracts, and the working practices emanating from them which will decide contractors IR35 statuses.

It is these which will determine whether a contractor is inside or outside IR35 after April 2020. So, it is crucial to all contractors that recruitment agencies understand IR35 and draft their contracts with contractors accordingly. These contracts lie at the heart of it all.

Contractors Questions on Recruiters IR35 Strategy

  • How will the IR35 reforms affect recruiters?
  • How can recruiters help contractors stay outside IR35?
  • What should contractors do to influence the recruiters IR35 strategy?
  • How will the IR35 reforms affect future contractor recruitment?
  • When should recruiters start preparing for the private sector IR35 changes?

How will the IR35 Reforms Affect Recruiters

The IR35 reforms will have a huge impact on recruiters. Previously contractors decided their own IR35 statuses. In 2017, in the public sector, the Government changed all that. The hiring organisation is now responsible for deciding a contractor’s IR35 status. If they get it wrong they may be responsible for paying the back tax, penalties and interest.

In April 2020 this will be implemented in the private sector too. Although it will be the hiring company’s decision as to the IR35 status of contractors it is the recruitment agencies who will have to implement it. They will be responsible for extracting the employee tax and National Insurance from the contractor’s income before paying him or her. That’s if the contractor is found to be inside IR35.

This will mean that the recruitment company will have to have a payroll function at the company. What those smaller agencies tended to do in the public sector was to insist that contractors joined umbrella companies. Then it was the umbrella company’s responsibility for deducting tax and national insurance from a contractor.

How Can Recruiters Help Contractors Stay Outside IR35

However, recruiters have a massive opportunity to help their contractors stay outside IR35. Whether a contractor is outside or inside IR35 is all down to:-

  1. The contract between the recruiter and the contractor
  2. The contract between the recruiter and the client company
  3. The working practices of the contractor at the client company emanating from those two contracts

So, as you can see, the recruitment company is central to it all. If they get it right and the contractor and client company implement what is in the contract, then the contractor is highly likely to be outside IR35. It will be a lot easier for recruiters to recruit contractors for a position if the role is outside IR35.

What Should contractors Do to Influence the Recruiters IR35 Strategy

So, it is crucial for contractors to contact their agencies to find out what their plans are for the IR35 reforms. Recruiters should be changing their standard contracts right now. HMRC will be very suspicious if agencies change their contracts just before the IR35 reforms are implemented.

Of the two contracts, the contract between the recruitment company and the client company is the more important. The contract between the contractor and the recruiter emanates from that one. It is crucial that the recruitment company and client company agree a new way of working between the contractor and the company. This should be incorporated in the contract with the client company and the one with the contractor.

How Will the IR35 Reforms Affect Future Contractor Recruitment

It is in the interests of all parties that this happens. It will be much easier for the recruiter and client company to recruit contractors after April 2020 if he contractor doesn’t have to pay a huge chunk of his or her income in tax and NI. Those client companies who declare all their roles inside IR35 will almost certainly have to pay a premium to get contractors for their projects.

This is what happened in the public sector. NHS locum doctors increased their rates by more than 6% in the six months after the IR35 reforms in the public sector.

When Should Recruiters Start Preparing for the Private Sector IR35 Changes

Hopefully, recruiters are already preparing for this. However, one would speculate that some are preparing for this and some are not. It is crucial that contractors contact their recruitment agencies to find out what the recruiters are doing about this. They need to find out if the agency is prepared.

The contractor should not renew his or her contract under the same terms and conditions if he, or she, believe that the contract and working practices are inside IR35. Any contract changes need to be done as soon as possible. They should not be done just before implementation date.

In the run up to April 2020 recruiters IR35 strategy will be crucial. To help recruiters and their client companies here are a couple of advice articles we published earlier.

 How Companies Can Help Contractors Stay Outside IR35

18 Ways to Stay Outside IR35 – Courtesy of he Special Commissioners.

You could let your agency see these. But get this all done now. Don’t arouse HMRC suspicion by suddenly changing your contract just before April 2020.

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