IR35 – what recruitment agencies need to know

One of the biggest bumps in the road within the recruitment industry has been the changes to IR35. Even though things seem to have settled over the last few years, if you are a recruitment agency placing or looking to place limited company contractors you need to be aware of IR35 and how it can affect you. So, what is IR35 and what do recruitment agencies need to know?

HMRC introduced IR35, or “off-payroll working,” to stop tax avoidance. It applies to individuals who use intermediaries like limited or personal service companies but would count as employees if hired directly.

The (fairly) recent changes to the legislation (2017 for public sector and 2021 for private sector) shifted the responsibility for determining the employment status of contractors from the contractor to the client or the agency that engages them.

Client Responsibility

End clients must now determine if the contractors they hire would count as employees for tax purposes if hired directly. This involves evaluating factors such as control, substitution, and mutuality of obligation. However, if the end client is a small company, the responsibility remains with the contractor to determine their status.

Determining Employment Status

The end client may provide a Status Determination Statement (SDS), but the client, agency or contractor may also engage an independent IR35 assessment tool (such as Kingsbridge https://quba.solutions/partners/kingsbridge/) to help verify this. They may also choose to use HMRC’s own Check Employment Status for Tax (CEST) tool. Even though this has received heavy criticism for not taking all the factors into relevant consideration.

IR35 Status: – The IR35 status of a contractor will either be;

• Employed for tax purposes (inside IR35) – need to be paid PAYE
• Self-employed for tax purposes (outside IR35) – can be paid gross through a limited company

Impact on Contracts: IR35 may affect the terms of engagement between agencies, clients, and contractors. Contracts may need to be reviewed and updated to reflect the new IR35 rules.

Compliance: Agencies must ensure compliance with IR35 regulations to avoid penalties and legal consequences. This may include keeping accurate records, conducting status assessments, and providing necessary information to HMRC.

Offering Guidance: Agencies can offer guidance and support to clients and contractors navigating the IR35 rules. This may involve providing resources, training, or consulting services to help them understand and comply with the legislation.

QUBA Solutions provide a flexible invoice finance and back-office solutions specifically for recruitment agencies and help to pay thousands of contractors compliantly each week. If you would like to know more about how we could help your agency please contract Peter O’Donnell on 07876 805 128 / [email protected] – www.quba.solutions.

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