Following recent announcements, the IR35 private sector roll out has been postponed until April 2021. While this removes some of the urgency of IR35 planning, we recommend that organisations still look into their ways of working to ensure they’re compatible with the 2021 IR35 legislation change and are happy to advise further.
Reed Professional Services has facilitated the use of specialist consultants in the public sector for years, working outside IR35 with clients including DEFRA and the Cabinet Office. As IR35 expands to affect the private sector, we look at what this means and how Reed Professional Services can help minimise disruption.
What is IR35?
IR35 has been around for two decades. It was intended from its inception to reduce or eliminate “disguised employment”, where an external consultant operating their own limited company is hired for a specific role within an organisation and is treated similarly to an employee, with little say over their working hours and limited autonomy. As the consultant is operating their own limited company, they may end up paying a lower amount of income tax than they would do as an employee of the organisation. IR35 makes organisations responsible for assessing whether the role filled by a consultant is ‘inside’ IR35 (and therefore attracts Tax and NI at source) or ‘outside’ IR35. It is the responsibility of the end client to ensure they assess each role and assign an inside or outside IR35 status correctly.
From the 6th of April 2020, IR35 will expand affect the private sector. We’ll go into what this means in a moment, but should state up front that there’s no need for private sector organisations to panic or cease use of consultants. Reed Professional Services has facilitated the use of specialist consultants in the public and private sector for years, our Work Package methodologies meaning clients face no risk of falling foul of IR35. Private sector organisations that have never used a Work Package approach will need to adapt, but this can be done with little to no disruption to working practices, and we can support you through the process using more than a decade of experience.
What’s the impact of this change?
The change means that any organisation looking to make use of contractors to fill specialist roles will need to determine whether each role/contract falls inside or outside IR35. Contracts falling outside IR35 will be unaffected, but if the contract falls inside IR35, the employer will need to see that the correct amount of tax and NI is paid. Adding an extra layer of complication is that the terms of the contract aren’t necessarily the deciding factor in whether a contract falls inside or outside IR35. What matters is what the consultant actually does day-to-day; whether they function as an employee of the organisation and are beholden to its rules, working hours, and more. If HMRC believes a role/contract stated to be outside IR35 is actually inside IR35, they may open an investigation, and if the conclusion of that investigation is that the wrong determination was made, back-tax may be due.
How does RPS support projects outside of IR35?
The answer to this is relatively simple. For over a decade, our Work Package methodologies have focused on outcomes, deliverables, and services, rather than the employment of specific consultants. RPS commits to deliver a project and defines the deliverables, then selects the consultants whose skills best match the requirements, no matter who they are. We take full ownership of the delivery of the project, and thus absorb the risk, providing a fully managed solution to our clients. By us taking ownership of the whole lifespan and risk, the contract sits outside of IR35. We’re not providing a ‘headcount’ of consultants, we’re utilizing the unique experience of our teams to handle every element of the project delivery, which is what makes RPS different from a traditional consultant-based suppliers, and is why unlike our sister company Reed Global, we’re not a recruitment agency.
If you’re interested in finding out more about how our Work Package methodology can support your project needs, or have a project you’d like to discuss, please get in touch.