Do you know how many contractors your business utilises? Do you keep up to date with their status within your company?
According to one legal consultancy which specialises in new legislation around contractors, not only should you know but you should be constantly keeping on top of this information.
Brookson Legal are consultants and specialists when it comes to IR35 – a piece of tax legislation that has a small name, but potentially massive consequences for businesses.
Marcus Kenny, business development manager at the legal consultancy, said: “Businesses across all industries use contractors at different times for different reasons, particularly if they are experiencing fast levels of growth and they have to keep up with that increase in demand.”
As a way to get quality people fast, companies would hire contractors who can hit the ground running, circumventing a lengthy recruitment and training process.
But this new law, which came into effect in April, can stifle that way of bringing people on board if they don’t understand it and do the additional work it brings.
According to the government and HMRC, IR35 was designed to close a loophole that allowed contractors and businesses to pay less tax and national insurance than if they were an employee of the business. But for companies who use contractors as a legitimate part of their set-up, it means a lot more work.
Matt Fryer, Brookson Legal’s head of legal services, explained: “It does mean a lot more red tape for businesses and with that a lot more time to adapt and develop processes to comply with IR35.
“However for businesses who get it right, it can make them more attractive to the top contractors because they can offer higher rates of payment – up to 25% more than their competitors who might institute bans on contractors or who will pay lower rates to contractors to cover their own increase in costs by finding ‘quick wins’ to be compliant.”
The new IR35 assessment for contractors will determine if a person is ‘outside’ or ‘inside’ IR35, which will set the levels of tax and national insurance contribution.
What Brookson Legal does for their clients is twofold – first, they can help businesses stay on the right side of IR35 using their knowledge and experience of the law and how HMRC are enforcing it. Secondly, they can help a business understand who is in their workforce and carry out regular audits to help them stay compliant over time.
“Many people did the work to get ready for the April deadline,” Matt said, “but they then took their eye off the ball.
“Because of the nature of the law, a person’s IR35 status could change at any point, which is why it’s vital for businesses to remember it’s an ongoing obligation.”
Although HMRC are only seeking payment of any back taxes if they find a company in breach of IR35, in April 2022 they will start introducing penalties, which could see the amount businesses owe double.
For more information, visit the Brookson Legal website.