Tuesday, May 11, 2021

Organisations aren’t ready for changes to off-payroll working rules, says MHR

Three-quarters of UK organisations are not ready for changes to off-payroll working rules, which are being extended to include the private and voluntary sectors in just six months’ time, reveals a new Twitter poll by HR and payroll software and service provider MHR.

IR35 is an anti-avoidance tax legislation designed to stop companies from using ‘disguised employment’ as a way of getting around their tax and national insurance obligations.

The poll of 1,228 people responsible for IR35 preparations at their respective company found that 74% are not ready for the new rules, leaving the business exposed to potential rising costs and a significant skills shortage in the future.

From 6th April next year, medium or large-sized businesses in the private and voluntary sectors will be responsible for assessing whether contractors need to pay income tax and national insurance contributions. Previously, such checks have been carried out by contractors themselves.

The reformed rules – known as IR35 – have been in place for public sector organisations contracting workers supplied through their own personal service companies since 2017. During this time an analysis of ONS (Office for National Statistics) data has found the number of off-payroll workers in the public sector – those classified as outside IR35 – has dropped by almost 10%.

Where employees fall inside the rules, businesses will be responsible for deducting income tax and National Insurance contributions via PAYE and will be required to pay employer NICs. 

Neil Tonks, legislation expert at MHR, warns: “IR35 represents a significant change in the way organisations in the private sector employ and pay their contractors. Preparing for the change is no easy task with the process estimated to take three to four weeks to complete, so it is critical that companies don’t pay lip service to the new rules and treat IR35 assessments as an urgent priority to ensure they fully comply.

“Failure to correctly assess contractors could lead to backdated demands for unpaid PAYE, tax and NIC, and fines for delays and late submissions, not to mention reputational damage which could impact the ability to attract contractors and other temporary workforces, who provide invaluable flexible expertise.”

Neil Tonks recommends six top tips to prepare from a HR perspective to ensure you don’t fall foul of the new rules.

1.    Audit contractors: All too often contractors are hired by individual departments rather than via central recruitment teams so you may not know they exist. Don’t assume that they will be on your HR or payroll system because more than likely they won’t. However, they will need to be under the new rules.

2.    In or out: Assess individually to decide if they’re in or out of the rules. Failing to demonstrate reasonable care to correctly classify such roles for employment tax purposes.

3.    Create a clear communications plan: Communicate with your contractors every step of the way so they are fully aware that you are taking ‘reasonable care’ to assess their status.

4.    Introduce a new agreement policy: The employment status of your contractors will need to be clearly outlined in an agreement policy. You will more than likely need to formulate a new agreement policy for any new contractors you take on from April.

5.    Consider the true cost to your business: HR departments need to be aware that the cost of employing such workers could rise as a result of IR35. To compensate for their tax and NIC contributions being deducted at source, many contractors may look to increase their daily or hourly rate. To help minimise the impact of any increase in fees, talk to your contractors impacted by the change at the earliest opportunity so any cost increase doesn’t come as a surprise and can be budgeted for. Any negotiation you can do may help minimise this.

6.    Set up on your HR and payroll system: If your contractors operate through an agency, it is the agency’s responsibility to deduct the tax and pass that info on to HMRC. In this instance, the contractors would be on the agency payroll and not your own. Other than that, contractors who fall inside IR35 will need to be setup on your payroll system. Contractors inside IR35 aren’t entitled to receive a payslip but you are obliged to inform them how much tax and NI has been deducted.

A message from the Editor:

Thank you for reading this story on our news site - please take a moment to read this important message:

As you know, our aim is to bring you, the reader, an editorially led news site and magazine but journalism costs money and we rely on advertising, print and digital revenues to help to support them.

With the Covid-19 pandemichaving a major impact on our industry as a whole, the advertising revenues we normally receive, which helps us cover the cost of our journalists and this website, have been drastically affected.

As such we need your help. If you can support our news sites/magazines with either a small donation of even £1, or a subscription to our magazine, which costs just £31.50 per year, (inc p&P and mailed direct to your door) your generosity will help us weather the storm and continue in our quest to deliver quality journalism.

As a subscriber, you will have unlimited access to our web site and magazine. You'll also be offered VIP invitations to our events, preferential rates to all our awards and get access to exclusive newsletters and content.

Just click here to subscribe and in the meantime may I wish you the very best.

Latest news

Builder shortage? 3 tips for improving recruitment

Standards are high in the construction field, so it’s important that your recruitment processes are impeccable. This will help you net the best talent on...

How a bad job advert can affect your chances of finding the right candidate

A job advert is your first opportunity to introduce yourself to prospective employees and attract the right talent. It is crucial this first impression...

Britain’s bosses accused of negligence: what might they do to improve?

Due to the difficult conditions most businesses are subject to, the need for apt leadership is perhaps more prevalent than ever before. A damning BBC...

Lincoln Science Park secures £10m to accelerate second phase of development

A £10m funding package has been secured to begin developing the next stage of Lincoln Science & Innovation Park. This follows its success in...

Sheffield solicitors launch national wealth service

Sheffield solicitors, Taylor&Emmet, is introducing a new multidisciplinary service tailored to the needs of high-net-worth and ultra-high-net-worth individuals. The firm has created a dedicated wealth...

Developer secures £17m to improve South Leeds’ transport infrastructure

Leeds property investment and development company, Munroe K, has secured £17 million to improve transport infrastructure in South Leeds. The company secured the funds after...

Related news

Textile dyeing ‘secret weapon’ for hospitality & healthcare industries to reach low carbon ideals

Regenex is challenging hospitality and healthcare industries to use textile dyeing as a “secret weapon” to help reach low carbon ideals. The Buttershaw, Bradfod-based linen...

Housing association expresses positive hopes for 2021 in New Year message

The Chair and Chief Executive of Bradford-based Manningham Housing Association (MHA) have said that 2021 can bring “better times for people of all ages”...

Business Lincolnshire launches campaign to help businesses post-COVID-19

With lockdown restrictions continuing to ease, many businesses are preparing for life in the ‘new normal’. The impact of COVID-19 ranges by industry and...

Prioritise jobs, training for young to drive UK-wide recovery – CBI

The CBI has laid out a health-first recovery plan that it said would help secure a jobs-rich, fair and sustainable future for the UK...

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.