IR35 Reform April 2020- Are your clients insisting on workers being paid PAYE?

There are businesses of all sizes and across all industries who are not ready for the reform to IR35 legislation in the private sector. Even HMRC themselves are unable to answer all questions from the public about how the new rules will work.

As a recruitment agency, your clients are likely to be amongst the confused and will inevitably take the knee-jerk reaction to put all of their contractors “inside” IR35 to avoid exposure or because nobody has the time to assess each individual case. Whilst it seems sensible, this approach is not pragmatic. Particularly for contractors who, by their very nature, fall outside IR35 and those agencies attempting to supply them. For those contractors deemed inside IR35, they have a choice to stay in their PSC structure with highly punitive tax rules or move to be paid PAYE.

Why are clients insisting workers be paid PAYE?

The answer to this question is three-fold.

1. Liability

Although in the proposed rules the responsibility is on the end-user to make the determination, and the fee-payer remains liable for the tax and NICs, many end users are worried that if something goes wrong the tax liability will fall to them. For example, HMRC has confirmed that in the event of the fee payer failing to pay correct tax/NI and then becoming insolvent, HMRC may seek to recover the underpayment from elsewhere in the supply chain.

2. Compliance Burden

Whilst HMRC is adamant that the end-user is best placed to understand and interpret the nature of the assignment and to make an IR35 determination, agency clients are concerned about their increased burden. The difficulty being that the test is a subjective one and that the reliability of HMRC’s Check Employment Status tool is questionable.

3. Historical Status

As it stands, the contractor is responsible for determining their own IR35 status. With this responsibility moving to the end-user, many end users are worried that HMRC might investigate contractors who have historically classified themselves as “outside” IR35 when the end-user classifies them as “inside” as the new rules provide no amnesty for historical arrangements. There is the possibility of the end client causing a worker to face backdated challenges causing dissatisfaction within the workforce.

What are your options?

Research by law firm Brookson Legal showed that only 47% of organisations said they had taken steps to understand the upcoming legislation, so the best thing you can do for your clients at this time is to educate them. Explain that:

• The change is coming – Many organisations are challenging the proposal however HMRC has already delayed once and is adamant that the UK workforce should pay PAYE.
• Planning is important – Workers changing over at speed will be unsettled so plan ahead
• Understand the costs – Both to them, you and the worker. When negotiating new contracts, it will be crucial to understand the rate of pay required to ensure a continued supply of workforce
• Understand the timescale for change- communication to the worker will be crucial to avoid complete confusion. PAYE will result in lower take-home pay but increased benefits.

By communicating this information to your clients, we can help educate the industry and ensure that changes enforced on the industry are dealt with in a professional and timely manner

If your client’s do insist on workers being paid PAYE, you can refer your workers to Plus. Plus is a fully compliant PAYE umbrella service which is one of the cheapest on the market. For more information call us on 03333 110 222 or by using any of the methods on our “Contact Us” page.

*This document is not a substitute for specific legal, accounting or other professional advice or opinions on related matters and issues that arise and should not be taken as providing specific advice on any of the topics discussed.

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