The new IR35 legislation affecting private sector clients is coming into force from 6th April 2021. Every agency that is placing temporary, contract or interim placements needs to ensure that their clients, candidates, and company follow the new rules to avoid potential investigations, tax bills, fines, and penalties.
Whereas the previous rules meant the candidates could determine their IR35 status based on the contract they were engaged with, this has now reverted to the end client making the determination. All parties in the chain have an element of responsibility.
Most recruitment agencies are hopefully aware of the new rules, and the agencies who have candidates working in the public sector will already be complying with this legislation as it affected these types of placements since 6th April 2017.
However, if your agency has been burying its head in the sand believing that it will not affect them or if you are leaving it to the last minute, here is a guide to what you should do:-
REVIEW YOUR CANDIDATES WHO ARE BEING PAID TO LIMITED COMPANIES
The new IR35 legislation may affect candidates currently being paid via their own limited companies. It is best to start with a list of those potentially affected candidates, so you know which clients you need to contact next. If the candidate is working for an international client, then these placements are not affected.
IDENTIFY YOUR CLIENTS WHO ARE CLASSED AS “LARGE AND MEDIUM COMPANIES”
The new IR35 legislation only affects clients classed as “large and medium” companies. A client is a “large and medium” company if (within 12 months) they meet 2 or more of the following: –
- Turnover over £10.2m
- Balance sheet over £5.1m
- More than 50 employees
If your client is a “large and medium” company, you will need to speak to them about how IR35 will affect current and future placements.
GET YOUR CLIENTS TO COMPLETE A CEST TEST FOR EACH PLACEMENT
If your client is a “large and medium” company and the candidates are paid via their own limited company, you will need to get the client to assess each placement to see if they fall inside or outside of IR35. There is a government tool called the CEST test, which the client will need to complete for each placement, and from this, they will be able to provide the agency with a Status Determination Sheet (SDS) to inform the agency of the decision. It is advisable on any future job specification supplied by these clients that they provide an SDS for each placement, so the agency can ensure the candidate is aware of this before they apply/accept the position.
DISCUSS WITH AFFECTED CANDIDATES HOW THEY NEED TO BE PAID FROM 6TH APRIL 2021
If the SDS determines that the placement is inside IR35/employed, then the candidate must be paid via the agency PAYE scheme or umbrella company going forwards. The candidate will potentially not be happy with this change as it could decrease their take-home pay, but it does mean they may have been using the incorrect IR35 status for some time. If the placement is deemed outside IR35/self-employed, the candidate can continue to be paid via their own limited company.
OBTAIN RELEVANT CONTRACT TEMPLATES
You may need to review your current contract templates to ensure that they are compliant under the new IR35 rules and reflect whether the candidate is being paid PAYE, via an umbrella company or via a limited company. It is best to get these reviewed by a specialist recruitment lawyer or purchase new templates that comply with the latest changes in legislation.
REVIEW YOUR UMBRELLA COMPANIES
As part of your IR35 review, you should also ensure that the umbrella companies that you are paying are running a compliant solution for your candidates. The best way to do this is to check that the umbrella company is audited either by the FCSA or Professional Passport. This will avoid both the agency and client facing any fines if the candidate is not paid correctly under the IR35 ruling.
Once your agency has completed the review of the existing placements that may be affected by IR35, it is advisable to put processes in place to ensure that any new placements have had their status determined by the client before running adverts to attract candidates. This way, any candidate who applies for the position knows how they will need to be paid, which can avoid discussions after the effect.
TBOS has been working with its recruitment agency clients to identify both the clients and potential placements that may fall within the new IR35 legislation. TBOS also provides help and advice to clients, candidates and agency staff to ensure they understand the new legislation and have processes in place for their future placements. Please contact our office if you would like further information on how we can help your agency.