As a CEO or business leader you recognise the value that contract workers or consultants can offer. Their expertise is often niche, in short supply and deserving of a high price point.
These contractors have developed their skills over a focused career and provide businesses with an invaluable solution to an array of challenges. In our case, people or HR challenges.
BUT things are changing and as of 6th April 2021 the off-payroll working rules (IR35) will be different. This will fundamentally impact how businesses engage the services of contract workers.
Understandably you have a lot of questions, such as:
- What actually is IR35 and how will it affect my business?
- What action do I need to take to ensure I am compliant with the new rules and won’t be penalised?
- Will I still be able to hire HR consultants on a date rate?
- What are the contract HR hiring options available to me?
Can I still hire an HR contractor on a day rate?
Yes. The good news is that you can absolutely still hire HR consultants on a contract basis.
You just need to follow the correct protocol to ensure that you and your contractor are not in breach of the new off-payroll working rules.
The first thing to understand is that the off-payroll working rules only apply to contractors who provide their services through their own limited company or another type of intermediary.
Day rate contractors who are paid via an umbrella company or PAYE agency will not be affected by these regulations. This means that you are free to hire HR contractors in either of these ways without needing to consider the impact of IR35.
Additionally, hiring an HR professional on a fixed term contract (FTC) where you pay a prorated salary over a set time is another viable option. This approach is particularly common when it comes to maternity leave cover.
Engaging the services of a limited company HR contractor
So what does it mean for you if you engage a consultant who is contracting through their own limited company?
It means that before any engagement between you and the contractor can commence, a ‘status determination statement’ (SDS) needs to be generated. This is established based on a comprehensive assessment that determines a contractor’s deemed employment status and the reasons for reaching this conclusion.
This SDS will indicate whether engaging the contractor to undertake the assignment will result in the contractor falling either inside or outside of IR35.
What does inside or outside IR35 mean?
Put simply, a SDS of ‘inside IR35’ means that the service provided by a contractor is deemed by HMRC to reflect a service of employment, not self-employment. That means if a contractor is inside IR35, they would be expected to pay income tax and National Insurance Contributions just like employees do.
If a SDS came back as ‘outside IR35’ it means that HMRC would consider the contractor to be genuinely self-employed and therefore able to pay themselves in a more tax-efficient way.
Unfortunately, when it comes to status determination it’s never black and white. There are a number of different determining factors that need to be taken into account, none of which are determinative on their own. For instance:
- Substitution – does the contractor have the right to provide a substitute if they are unable to deliver the work?
- Control – does the client have control over what work is done, when it’s completed, how it’s undertaken and where it’s delivered from?
- Mutuality of obligation – is the contractor free to choose the jobs they work?
The actual process of reaching a SDS is far more complicated than outlined above, however this hopefully provides a flavour of some of the key areas that will impact its outcome.
How do I get a status determination on an HR contract worker?
It is a company’s responsibility to establish a contractor’s employment status and this can be undertaken in a number of different ways.
Firstly, businesses can use HMRC’s CEST tool (Check Employment Status for Tax) to generate the SDS. This is essentially a 16 question assessment. However, this tool has been highly criticised for a number of reasons. Including its inability to align with full IR35 case law and it’s failure to meet the standard for reasonable care.
More comprehensive tools, such as IR35 Shield, are available to help provide an accurate SDS. Such assessments are underpinned by current case law and give a clear ‘inside IR35’ or ‘outside IR35’ result every time; with no indeterminate, borderline or unknown results.
Businesses could also simply use HMRC guidance and employment status principles (based on case law) to generate a SDS. Or alternatively enlist the services of a qualified, professional advisor.
Whichever approach you take you need to be able to demonstrate that ‘reasonable care’ has been taken to work out the status of each contractor. You need to look holistically at the whole assignment and the way it’s carried out when determining the contractor’s employment status.
How does this apply to my business?
If you’re on the cusp of hiring an HR contractor and want some IR35 support, then we can help.
We are proud to work with IR35 Shield to determine the employment status of our limited company contractors.
Hiring a limited company contractor through Peeq means no IR35 headaches. Let us guide you through the process and ensure you get the benefit of your day rate contractor without the fear of being penalised for breaching IR35 regulations.