We learnt recently that changes brought in by HMRC last April, to the way contractors in the public sector are taxed, has so far brought in £410m.
This is significant because such success in netting extra income tax and national insurance contributions makes it even more likely that HMRC will roll out these rules – known as IR35 – to the private sector.
From the government’s point of view, it must make perfect sense to apply IR35 to private as well as public sector contractors. Indeed, it is widely thought that the Chancellor Philip Hammond will use the November Budget to make an announcement about IR35 roll out, and for it to come into force in April 2019.
What is IR35 and how does it affect recruitment?
IR35 is designed to combat tax avoidance by workers supplying their services via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used. Such workers are called ‘disguised employees’.
It is almost the norm in the recruitment sector for contractors to be paid via intermediary companies. The advantage for the recruitment companies is they don’t have to pay benefits such as sick pay and holiday pay because the contractors aren’t classed as employees.
The advantage for contractors, on the face of it at least, is an apparently higher hourly rate, but there are also big disadvantages: they have none of the protections, such as sick pay, mentioned above; they need to manage their own tax affairs; and they must sort out their own public liability insurance, to name a few.
What makes 24-7 Staffing different?
We took the decision two years ago, in April 2016, to move all our contractors, also known as temporary staff, to PAYE (pay as you earn) and we are proud we did so.
This was an expensive option for our business, as it has meant turning away hundreds of limited company contractors who want to register with us, particular in our driving sector.
But we knew it was important to do the right thing for our contractors and for our clients. It means that when IR35 is introduced for the private sector, whether or not this is next April, we will be unaffected. Our contractors or temps, on PAYE, have full employment rights.
By contrast, contractors working through limited companies will be vulnerable as will the recruitment companies which are placing them in employment.
It is our belief that while in the first instance HMRC may go after the worker to recover unpaid tax, it may also look to recovering it from the recruitment agency; if this recourse is unsuccessful, next in line may could be the clients for whom the contractors were working.
It is now more important than ever for recruitment agencies to follow our example and switch their contractors to PAYE.
Now is also the time for employers to ask questions of the recruiters they use. Employers should be asking recruitment agencies what the employment status is of the workers they are using to ensure they don’t run this risk.
If you’re unsure about your status as a worker (or if you are an employer and want to check the status of your workers), then take this simple test and answer the questions through the eyes of a HMRC inspector as honestly as you can.
For more information, or if you are currently job-seeking and looking for a new challenge, please get in touch with the team.