What does this mean for me as a client?

It is important everyone educates themselves as to what these changes mean and how they impact you. There are many things that clients could be doing, but the following are some of the minimum steps that should be taken.

1. Set up a working group:
Pull together the right stakeholders within your organisation who may have an interest in the new IR35 rules – HR, legal, tax, payroll, IT and recruitment partners. Who needs to know about this and what do they need to do in order to support it?

2. Identify who is at risk:
You need to understand the extent of the issue you are facing. How many contractors are in scope? How do you track who and where they are? How critical are they to your operation?

3. Review your systems:
Are your IT and payroll systems up-to-speed and able to cope with the change?
What controls do you put in place to make a determination about their status?
Seek advice: It is so important to understand the rules. Work with your advisers and recruitment partners to be better informed.

4. Review employment models and policies:
Understand the different models you could use. Is it about moving contractors to PAYE, using Statements of Work or an Employed Consultant (EC) model? What will be your strategy to hold onto key talent? Will you have specific policies that govern the use of contractors in your organisation?

5. Communicate:
Make sure you engage your internal audiences as well as the contractors. More people will become aware of the pending changes over the coming months and they will all have questions.

Client Q&A

What approaches are employers taking now that the implementation of the IR35 reforms have been delayed until 6 April 2021?
Employers have invested time and resource into implementing the IR35 reforms.  Following the announcement to delay the planned changes, employers now need to decide their next steps.

Some have opted to continue as planned, some employers have decided to continue as planned but at a slower pace and some employers have decided to postpone the implementation as planned for the rest of this year.

Whatever approach each employer has decided to take, it is vitally important that contractors are updated at the earliest opportunity to minimise disruption.

What support can ManpowerGroup offer?
We have a well-established IR35 programme which offers a variety of tools and resources to support employers and contractors alike in their preparations for the introduction of the reforms. To find out more please contact your ManpowerGroup representative or contact our dedicated IR35 team.

Are you aware of any specific tools to determine contractor status?
HMRC has developed CEST to assist in deciding whether a role is inside or outside the IR35 rules. There are also a number of third-party tools and services available.

Is my company exempt from the reform?
Small companies as defined by the Companies Act will be exempt from the changes. This does not mean IR35 does not apply, but that the responsibilities around the legislation sit with the contractor.

Are you mandated to use the agencies umbrella company? Can you use your preferred umbrella if it is FCSA certified?
Clients and agencies are likely to have their own policies as to which umbrella companies they are comfortable engaging with, we have even seen some clients prohibit the use of umbrella companies.

Is it advisable to assess the role before it is filled or once a person is assigned to the role?
It is advisable to advertise the role with a status so that you provide clarity to those applying for the role, but a full Status Determination Status (SDS) will be required at some stage. The HMRC state: Advertising a role as inside or outside the rules may add clarity to workers, but it is not, on its own, sufficient to be a valid SDS.

Can companies advertise for “in-scope IR35” vacancies and “out of scope IR35” vacancies?
Yes, companies may have certain roles that are in-scope and other roles that are out of scope.

What happens if a contractor is not a UK tax resident and/or performing services outside the UK?
Offshore working and overseas payments can become quite complex. The ESM 10025 and ESM 10026 try to add clarity to this subject, but my recommendation would be to seek professional advice for these engagements.

In your experience, who is picking up the additional cost for in-scope contactors?
To date, we have seen the vast majority (c.80%) of clients pass this cost on.

When can HMRC guidance be expected?
HMRC guidance is available now through ESM10000.

How can we get information from companies in the supply chain whether their workers have a PSC or are PAYE?
Some companies have central systems that contains this information, but if you are not in this situation, it will be a case of contacting the supplier and asking them to declare any PSC contractors they are supplying to you.

HMRC are asking us to give a fact sheet to contractors and provide information about the number of contractors we have spoken to and what they’ve said- is anyone else experiencing this?
HMRC have been contacting companies to understand what position they are in with regards to IR35 and to help educate them. We have had a similar session. You would be well advised to go to those sessions well prepared to give the HMRC confidence in how you are approaching the legislation.

What lessons can be learnt from the public sector?
Make status determinations early, communicate well with the contractors, and be prepared for some attrition. The HMRC have tried to update the legislation to ensure that the determination process in particular is fair to the contractor, so they are applying the lessons they’ve learnt as well.

What amendments do we need to make to contract terms?
Contracts with suppliers and PSCs should be reviewed in light of the legislation, but equally SOW and Consultancy agreements should be reviewed as well. The appropriate updates will depend on the approach you are taking to the legislation but may include the requirement for the supplier to declare any PSC resources they supply you, give a timeframe for appeals from the PSC, or mandate the usage of certain umbrella companies.

If nearly half of all companies are opting for PAYE only, do you find a lot of contractor churn and if so, where do they all go? Especially if other companies are also likely to adopt a similar approach?
Some contractor churn is happening already, but the true effect of these approaches won’t become known until the legislation has taken effect.

Contractors may choose to engage with clients that have roles deemed outside of IR35, or who are more flexible to engaging PSC contractors.

Do you have to use a tool at all? As long as you can evidence how you made your decision?
You do not need to use a tool to make a determination, but you need to be confident you can demonstrate reasonable care should you be challenged.

Should we include the status determination as a clause within consultancy T&C’s?
This isn’t necessary/mandatory, but you may choose to update your contracts if you feel that will provide you the best clarity and protection.

When an agency is used and a role has been accessed, is it sufficient for the agency to pass on the determination to the individual?
The legislation is clear that the determination to the worker should be sent by the end-user, e.g. the client. The exact wording from the ESM is: The client is the only party required to send a copy of the SDS to the worker.

If we provide an assessment to the worker and we have taken “reasonable care”, however the status is determined as incorrect by HMRC – where does the liability lie?
There is a debate as to whether you can exercise reasonable care and arrive at the wrong determination, but the HMRC have verbally advised us that in this situation the fee-payer would be liable. Once the changes to the legislation take effect, I would anticipate case law will set some precedents in this area.

Is the determination necessary to be sent to everyone, regardless of the results? Outside and Inside? Or just Inside?
Yes, regardless of whether the determination is inside or outside, an SDS must be sent.

Please provide more details on how to implement a dispute process – best practices?
Further details on the dispute process can be found here: https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm10015

This is a new aspect of the legislation so there is a lack of established best practice, but my advice would be to endeavour to resolve the dispute promptly. You have a 45-day timeframe to do so, but it would be beneficial to all parties if the dispute was resolved much quicker than this.

If a resource is via an agency, will the HMRC’s first point of call be the agencies rather than the end client?
It depends on where the failing has occurred. If there has been a lack of reasonable care in making the status determination, the end-user will be liable for unpaid taxes and NICs.

If the fee-payer has been informed that the status is ‘inside IR35’ but has failed to make the deductions, the HMRC will initially pursue that party for the unpaid taxes and NICs.

Do Manpower (and/or its sub-brands i.e. Tapfin) offer a PAYE engagement service?
Yes, ManpowerGroup have various options when it comes to PAYE engagements including Contract for Services, Contract of Employment, and Employed Consultants. We are happy to discuss further as required, please reach out to your account team as a starting point.

How do you manage supply chain transparency to mitigate against uncompliant Umbrellas?
This can be achieved in a number of ways including the reconciliation of intermediaries reporting, auditing of the supply chain or spot-checking of engagements.

If a manager has dressed a role up as a SOW, this will come out in the CEST wash, correct (assuming the tool is answered to reflect actual working practice)?
In theory, yes. The danger with body-shopping SOWs is that the client may believe they do not need to make a determination because the engagement is on a SOW, so no determination is made, and the client is held liable.

How have your clients dealt with ever increasing Unable to Determine assessment outcomes?
As a starting point we would encourage clients to refer to the CEST ESM to ascertain whether the responses to any questions need to be changed. See link here: https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm11000

If that does not provide the clarity required to arrive at a determination, we would recommend seeking professional assistance.

We are a financial services firm that has self-employed financial advisers. Do we need to assess them as well as our contractors?
Potentially yes. This will depend on whether your company qualifies for small company exemption or not (the change in legislation will not apply to those companies fulfilling the small company criteria set out in the Companies Act 2006) and how the workers are engaged. Assuming they operate through a PSC and your company is medium/large, you will need to make a determination. If the workers are sole traders, the legislation does not apply.

If you have completed your CEST determinations, and HMRC have now provided ESMs and outlined more about expenses as discussed, do we have to check that all of them are in line with the ESMs as they weren’t in place when CEST assessments were completed?
Not necessarily. It would be worth reviewing the ESM to make sure your understanding of the questions in CEST are correct, and if upon reading the ESM you conclude you would answer a question differently, you may wish to then revisit the determinations. Link to CEST ESM here.

The CEST tool classifies some contractors as Undetermined. What is your recommendation on how to deal with this – in or out of scope?

As a starting point we would encourage clients to refer to the CEST ESM to ascertain whether the responses to any questions need to be changed. See link here: https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm11000

If that does not provide the clarity required to arrive at a determination, we would recommend seeking professional assistance.

Do you have any recommendations for setting up the admin process?
This is quite a broad question because there are a number of processes that need to be considered ranging from how PSC contractors are onboarded through, how to make determinations and how to administer deductions if you are the fee-payer.

Our recommendation would be to form a cross functional project team to tackle the legislation and review all these aspects.

Are ESMs downloadable or only online content?
The ESMs are hosted online. If there isn’t a download option, you can always print as a PDF.

You said for Umbrella/PAYE relationship, IR35 does not apply – it is out of scope. What about an end client hiring a worker that is PAYE through Red Agency?
If the worker is engaged on a PAYE basis, either through an umbrella or an agency, the legislation does not apply.

Are you finding more and more clients are stating they don’t want PSCs from April – only PAYE or Umbrella PAYE?
We have seen a number of clients adopting this route. Consideration should be given as to whether this approach will compromise their ability to attract contingent talent going forward, and I would recommend that clients taking this approach review their policy at some point in the future to ensure it is still fit for purpose.

Should we send the determination in any situation, besides at offer stage? Basically, whenever we use a tool (at renewal contract; at role change)?
It is sensible to have a regular cadence to determinations, particularly outside determinations. Status determinations should be updated as the working practices change but this can be difficult to do, so having a defined cadence to the review of the status is a sensible compromise.

What would constitute ‘a framework for control’?
Having a well-documented policy with supporting process that detail your company’s approach to the legislation, and how you administer the legislation, is key. Essentially you want to be able to demonstrate that every PSC contractor in your business is dealt with compliantly.

Further information can be found at gov.uk.

If you have any other questions regarding IR35,
the Manpower team are available to assist you.

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