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Harvey Nash IR35 Update – For Contractors

Our latest IR35 updateThe proposed changes to IR35 in the Private Sector are set to bring with them significant change to the contractor/ client dynamic. As with most taxes, this has been greeted with resistance from all parties involved. As with any period of change, however, the revised IR35 legislation brings opportunity to those who are prepared. While the cancellation of the Autumn statement and the impending General Election have kept us in a state of wait, at Harvey Nash our position is that businesses and contractors must assume the revised IR35 will come into effect in April 2020 and begin preparations, if they have not already done so. Please be assured that we are working very hard to engage with all contractors and clients, providing them with the most up-to-date information surrounding IR35, to ensure we all successfully navigate the forthcoming changes. To that effect, Harvey Nash has developed this short factsheet, providing contractors with a concise overview of the relevant facts surrounding IR35 and useful resources to help determine their status and the best course of action ahead of the April deadline. Background With the exception of placements in the Public Sector, it has been the responsibility of each contractor or their Personal Service Company (PSC) to decide their own tax status in relation to IR35. The new “off-payroll working in the private sector” places responsibility for deciding if the IR35 rules apply on the end user (the “Client”) where the PSC is on assignment.The Client must therefore inform Harvey Nash if each engagement is “inside” or “outside” of IR35 ensuring that it takes ‘reasonable care’ when doing so.HMRC recently released an updated version of its electronic tool to conduct a test to support decisions - click here to find out more.Details regarding the rules and changes can be found at https://www.gov.uk/topic/business-tax/ir35. HMRC state in their latest factsheet ‘We estimate that two thirds of people working through a company are genuinely self-employed and not affected by these rules. What does this mean for Contractors? ‘Inside’ Determination Where the role is ‘inside’ IR35, and the legislation applies, the ‘Fee Payer’ (Harvey Nash) is required to: account for employment tax and Class 1 NICs due from payments made to the worker’s PSCdeduct those taxes from the payment to the worker’s PSCreport the taxes deducted to HM Revenue and Customs (HMRC) through Real Time Information (RTI) Therefore, unless otherwise agreed, it is Harvey Nash company policy that all contractors in an ‘Inside’ role provide services via a HMRC compliant umbrella company from our approved list, who will employ the contractor and make all relevant deductions and account for the relevant taxes. ‘Outside’ Determination Where the Client has determined the role is ‘Outside’ of IR35, the Contractor can decide whether they wish to provide services via an umbrella company (from Harvey Nash’s PSL) or use a PSC, and payments will be made gross by Harvey Nash to the chosen solution. What the Contractor can do: Contractors should consider whether their current role could be seen as being within the scope of IR35. If the Contractor is unable to provide a substitute, does not have autonomy over the delivery of the services, does not take financial risk or is subject the supervision, direction or control of the Client, then it likely that the role would be considered as inside IR35 for tax purposes and fall within the IR35 rules. For the avoidance of doubt the above is not exhaustive and only some of the examples of employment status, other criteria may/will be taken into consideration. Please visit the HMRC website via the link provided above. Summary The government’s response to comments on the draft legislation for the off-payroll rules coming into force on 6 April 2020 has been put on hold but it doesn’t mean we shouldn’t prepare. If we all work together, we can manage this change as best as possible. Harvey Nash will be working with Clients to confirm their approach for these changes and the likely determinations for each placement. Harvey Nash will contact each contractor as soon as possible regarding their engagement via Harvey Nash. These changes will not affect any contractors currently supplying services on a PAYE basis or via an umbrella company. If you have any questions relating to the revised IR35 changes, please get in touch with your HN representative or contact our compliance team – compliance@harveynash.com.If you require any further information please contact us at https://www.harveynash.co.uk/general-query-form.

Harvey Nash IR35 Update – For Companies

Our latest update on IR35At first glance, introducing the practices and processes to deliver a smooth transition to the revised IR35 may seem a difficult and daunting task. With effective planning, however, the revised IR35 to the Private Sector may bring with it ample opportunities for your business, from better contractor engagement models to resource management. From our experience, there are measures every business can take to prepare for the extension of IR35 to the private sector in April 2020. While the cancellation of the Autumn statement and the impending General Election have kept us in a state of wait, at Harvey Nash our position is that businesses and contractors must assume the revised IR35 will come into effect in April 2020, and begin preparations, if they have not already done so. The revised IR35’s introduction to the public sector in 2017 taught us a lot, and we are applying those lessons to support our clients and contractors now. Please be assured that we are and working very hard to engage with all contractors and clients, providing them with the most up-to-date information surrounding IR35, to ensure we all successfully navigate the forthcoming changes. This factsheet offers a concise overview of the facts surrounding the revised IR35, based on the most current information available, along with useful resources to help clients in making informed decisions. Background With the exception of placements in the Public Sector, it has been the responsibility of each contractor or their Personal Service Company (PSC) to decide their own tax status in relation to IR35. The new “off-payroll working in the private sector” places responsibility for deciding if the IR35 rules apply on the end user (the “Client”) where the PSC is on assignment.The Client must therefore inform Harvey Nash if each engagement is “inside” or “outside” of IR35 ensuring that it takes ‘reasonable care’ when doing so.HMRC recently released an updated version of its electronic tool to conduct a test to support decisions - click here to find out more.Details regarding the rules and changes can be found at https://www.gov.uk/topic/business-tax/ir35. HMRC state in their latest factsheet ‘We estimate that two thirds of people working through a company are genuinely self-employed and not affected by these rules What does this mean for Clients? Clients should begin to consider the status of their current engagements. If the contractor is unable to provide a substitute, does not have autonomy over the delivery of the services, does not take financial risk or is subject the supervision, direction or control of the Client, then it likely that the role would be considered as inside IR35 for tax purposes and fall within the IR35 rules. For the avoidance of doubt the above is not exhaustive and only some of the examples of employment status, other criteria may/will be taken into consideration. Please visit the HMRC website via the link provided above. Clients must ensure that they are fully compliant with the updated rules and look to assess the role of every contractor to understand the nature of the role and determine if it will be considered as ‘inside IR35’ or ‘outside IR35’. The Client must ensure that assessments are consistent and transparent and ensure that reasonable care is taken when determining the IR35 status for a role. The Client has an obligation to share its findings with Harvey Nash and the applicable contractor. Determinations may impact the way that a contractor is engaged by Harvey Nash and the obligations of Harvey Nash as the ‘Fee Payer’ may change so it is imperative that the Client assesses its contract roles as soon as possible. Summary The government’s response to comments on the draft legislation for the off-payroll rules coming into force on 6 April 2020 has been put on hold. The Budget has been cancelled, as have all the bills before it, including the Finance Bill, however, we have no option but to carry on preparing for the new rules based on the information that we have been provided with to date. Harvey Nash will be working with Clients to confirm their approach for these changes and the likely determinations for each placement so that Harvey Nash can ensure transparent communications with contractors, ensure full compliance with its obligations as the ‘Fee Payer’ and perform necessary administrative tasks prior to the April 2020. These changes will not affect any contractors currently supplying services on a PAYE basis or via an umbrella company. If you have any questions relating to your obligations under the revised IR35 changes, please get in touch with your Harvey Nash representative.If you have any questions relating to the revised IR35 changes, please get in touch with your HN representative or contact our compliance team – compliance@harveynash.com.If you require any further information please contact us at https://www.harveynash.co.uk/general-query-form.

Navigating IR35 & UK legislation....what are you doing about it?

Book a Discovery Meeting to navigate your way through IR35Next year the UK government will be introducing an important change to the IR35 legislation, putting much greater obligations on companies who use workers who provide their services through intermediaries, such as contractors.Many of the clients I speak to are concerned about this legislation, and not clear about its impact or what they need to do to avoid the risk of not conforming. A 5 minute overview of IR35 is at the end of this article.Harvey Nash are offering Discovery Meetings for employers, where you can speak with a Harvey Nash expert who can quickly help you take the first steps towards compliance, as well as give you greater insight around IR35 and wider compliance legislation.We have a very long track record of managing ten of thousands of contractors in a highly compliant way and we are delighted to share our knowledge.Let Harvey Nash help you navigate IR35.View an online version of this diagram here.

IT contractors, is a ‘shelve the big-ticket talent’ trend biting you?

Contractors in IT who took a deep dive into our newest survey of over 3,600 technology leaders would ordinarily return to the surface rubbing their hands together at some of the findings, because of what it should mean for their prospects as a freelance technologist, writes Colin Morley, director of Harvey Nash Recruitment Solutions.  After all, a bigger chunk of the leaders (55%) reported IT budget increases than at any time over the last 15 years (other than 2010), and a hefty two-thirds of the organisations admitted that they now let their technology be managed outside the IT department.Read full article in Contractor UKhttps://www.contractoruk.com/news/0014136it_contractors_shelve_big_ticket_talent_trend_biting_you.html

IR35 Highly Destructive To Public And Private Sectors, Harvey Nash Survey Reveals

- 80% of contractors believe the impact of IR35 on the public sector has been "very negative" - 42% of contractors have increased rates to balance cost of being caught within IR35 - compared to just 16% in 2017 - 5% of contractors are considering full time, permanent employment - 9 out of 10 people feel stressed, worried or angry when they think about the impact of IR35 on their livelihood - 8% of contractors citing HMRC as a reliable source of information - 1 in 3 found the HMRC Status tool to be "very ineffective"A new survey of public and private sector professionals, conducted by Harvey Nash Recruitment Solutions, reveals that 80% of contractors believe the impact of IR35 on the public sector has been “very negative”. The survey of more than 500 UK contractors, as well as business leaders and line managers clearly demonstrates the deeply negative impact of the regulation.  HMRC has been heavily scrutinised by tax experts and the business community for its poor implementation of IR35, causing unnecessary costs and destitutions for small businesses.To receive your copy of the report, click here.    Impact on Public Sector   One year since IR35 was rolled out into the public sector, the survey reveals a significant and synchronistic attitude towards the new legislation.   In fact, of those surveyed:50%have noticed a reduction in available contracts49% have only sought contract opportunities in the private sector43%have paid more tax  IR35 has created an uncertainty that hinders a contractor’s business by impeding on its financial strategy. This has led to 9 out of 10 people feeling stressed, worried or angry when they think about the impact of IR35 on their livelihood.   If contractors are found to fall within IR35, payments made cannot be gross and must include tax and NIC deductions. The deductions can therefore amount to a significant drop in earnings. In response to this, 42% of contractors have increased rates to balance the cost of being caught within IR35 – compared to just 16% in 2017.   The issue here is that public sector authorities are already struggling to budget for such a rise in cost across the board. Accepting this increase in cost is one way public sector bodies are responding, but with just 5% of contractors considering full time, permanent employment, the remaining options are indeed limited.   Implications for Private Sector   Research from Qdos Contractor has found ‘76% of UK contractors believe that private sector IR35 reform will be announced in 2018’ – despite protestations from industry experts and representatives.The majority of those surveyed believe that plans to extend IR35 to the private sector, will have a “very negative” impact on not only the economy (62%), but levels of productivity (62%) and innovation (68%). This will prove highly challenging in sectors where skills shortages are already causing strain.   If (or when) IR35 is introduced to the private sector, one out of two contractors said they will continue to contract in the UK, however they will seek contracts outside IR35.   Lacking Lucidity   The survey reveals HMRC is failing to provide the affected parties with clear information, with just 8% of contractors citing it as a reliable source of information. Many are turning to industry press (20%), their accountant (24%) and external experts within the industry (24%) for advice.   Furthermore, one year on since HMRC introduced their IR35 Check Employment Status for Tax (CEST) tool, research reveals that 1 in 3 found the tool to be “very ineffective”. The tool has proved unreliable, often determining incorrect results.   Seb Maley, CEO at Qdos Contractor commented: “Contractors are vital to the economy and contribute an estimated £119bn each year. It’s imperative these workers are able to continue working without the threat of being wrongly placed inside IR35.”   Kate Cottrell, Managing Director at Bauer & Cottrell, added: “The implementation of IR35 to the public sector continues to cause enormous disruption and, in some cases, real financial misery to those in the contractual chain.   “We are still waiting for HMRC to publish guidance, research and the consultation document on the proposed roll-out of the rules in the private sector. The public sector has been the guinea pig in this and it is time to call a halt to this experiment before considering a roll-out to the private sector.”   Colin Morley, Professional Services Director at Harvey Nash Recruitment Solutions summarises, “one year on and the introduction of IR35 to the public sector has proved highly problematic. The levels of frustration, fueled by the rudderless and sometimes contradictory IR35 forum meetings, have resulted in mistrust.   “Impact assessments have not been conducted within the public sector to investigate the effectiveness of IR35. Has it returned the circa £400 million to the Treasury that it promised to do so?   “Without concrete data, it seems irresponsible to roll out the same set of rules into the private sector when the consequences could be significantly contentious.  

Importance Of Jensal Software IR35 Appeal Cannot Be Understated

May 21, 2018HMRC has come down hard on public sector contractors in recent times, as it seeks to reclaim taxes it feels should have been paid under the updated IR35, justifying the validity of the regulation in the process. The announcement on 18th May from HMRC confirm that there will be IR35 reforms for the private sector following the Government consultation shows that this policy is set to continue.Unfortunately, things aren’t going as they might have hoped. Despite claims from Her Majesty’s Government that implementation of the regulation has been a success, clamping down on hidden employment and tax fraud, the overwhelming response from industry experts is that it has been disruptive at best, and harmful to both innovation and the economy at worst. Last week, contractor Ian Wells, a business analyst won his First-Tier Chamber IR35 case against HMRC, who claimed he was liable for a tax bill of more than £26,000 for services provided to the Department of Work and Pensions (DWP) between May 2012 and April 2013, under a personal services company, Jensal Software Ltd. As a Contractor UK analysis of the case states; “The taxman argued that a hypothetical contract of employment existed between Wells and the DWP, based on the: ‘obligation on the DWP to provide work and for Mr Wells to perform that work in return for a consideration…” and that “the clause [substitution] wasn’t exercised and that the DWP would need to check the credentials of any substitute, as challenges towards its legitimacy.”Lack of Clarity ApparentHowever, Judge Jennifer Dean deemed Well’s contract was a contract for services and thus was outside IR35. While the DWP’s lack of control over Jensal’s working methods was a critical factor in the decision, Judge Dean also rejected HMRC’s interpretation of Mutuality of Obligation (MOO), commenting, “Although there is MOO, it does not, in my view, extend beyond the irreducible minimum, nor does it demonstrate that the relationship was one of a contract of employment.”Taking the Well’s case into account, along with contractor Mark Daniel’s recent win against HMRC, the lack of clarity provided by HMRC is a major IR35 flaw and a more concise definition of the regulation is essential, particularly before it can be introduced to the private sector. As Seb Maley, CEO of Qdos and representative for Mr. Wells says, “Despite HMRC implementing and enforcing the rules, this verdict shows they can’t accurately assess a contractor’s IR35 status. The government is serious about clamping down on what they believe to be non-compliance, but worryingly, can’t recognise whether a contractor belongs inside or outside IR35. That the individual was working on a government project simply adds to the irony.“This case is further proof that IR35 needs simplifying, and HMRC must rethink its IR35 strategy completely. Clearly, this is no time to extend public sector changes to the private sector.”Click here to receive your copy of the Harvey Nash Recruitment Solutions’ 2018 IR35 Report.

IR35 And Brexit Threaten UK Tech Sector: How Can MSPs And RPOs Weather A Skill Shortage Storm?

The implementation of the new IR35 rules into the public sector has caused monumental discomfort to all involved. Yet, despite the chaos and a series of court cases later, HMRC is still considering extending those rules into the private sector.With only one significant IR35 win in the last decade (against Christa Ackroyd, the BBC presenter), it’s difficult to see how HMRC can view the implementation as a success.Perhaps compared to Brexit, anything looks successful.The private sector consultation is now closed, and as we await the verdict, it feels as though we’re sitting in the eye of the storm. The eerily calm silence highlights numerous concerns: should we be preparing for a whirlwind of tech talent shortage? Is it time for UK businesses to batten down the hatches and fight back?It is my fear that the combination of political and regulatory forces could amplify an already acute tech skills shortage. We need to stay competitive on the world stage. Already, our universities are being raided by Silicon Valley’s tech giants who coax our best talent overseas (an affliction dubbed ‘AI brain drain’).Stats shed light ahead of a stormy seasonA recent recruitment survey found that 80% of IT contractors will demand more employment benefits if they’re to be classed within IR35.A study by Harvey Nash Recruitment Solutions also revealed that 49% of participants have begun to exclusively seek private sector contracts in an attempt to avoid the tax clampdown (and no doubt, the confusion).Bearing the brunt of these increasing costs, public sector organisations are already finding it hard to afford the skilled technologists needed since the implementation of the new off-payroll rules last year.As 40% of all UK tech workers are contractors, the threat of IR35 being implemented in the private sector could cause vast disruption.When the dark clouds of IR35 collide with Brexit’s thunder and lightning, we could see a perfect storm facing organisations needing tech talent. These are more than headwinds: the lack of available resource and rising costs will damage the economy.The Threat of BrexitBrexit could result in the widening of the supply and demand gap. In a recent Harvey Nash Tech Survey, we found a third of London tech professionals originated from outside the UK.How would we replace these? With the loss of 86,000 EU working nationals since 2017, the uncertainty brewing from a possible no-deal Brexit could have negative consequences on the UK’s tech industry.  With little to no hard evidence of what Brexit will look like in March 2019, the risk of a skill shortage is very real. However, a Government commissioned report released on Tuesday 18th September, potentially gave us some hope that caps on skilled migrant workers might be scrapped.A Step Back?This political tsunami could see the UK’s tech industry take a step back.While Tech Nation places UK tech expertise second only to Silicon Valley’s, it is evident that the impact of IR35 and Brexit could stand to erode this.The combination of increasing costs and a lack of benefits within IT contracting, alongside growing anxiety over a no-deal Brexit, could spell the end to the UK’s growth as a leading global tech player.How Can You Weather a Skills Shortage Storm?In my role as Professional Services Director for Harvey Nash Recruitment Solutions, I help our clients consider and define innovative and dynamic resourcing strategies to satisfy demands for the best talent, cost savings, governance and compliance.In recent months, many more MSP and RPO clients have begun requesting alternative ways to source talent. Working with these clients, we are implementing different sourcing and engagement paradigms to help them stay ahead of the competition in the short, medium and long term.    These are a few of the solutions we are providing:Contractor Audit: Ensuring your contingent workforce is compliant to all UK legislation, financial and tax laws. You don’t want to end up like the BBC! It does what it says on the tin.Contractor Alumni’s: Proactively managing a bench of previously engaged resources in a cloud-based system that you can call back on. The benefit of the Alumni is that you are not paying an agency an expensive sourcing fee, but only a payroll fee as the candidate is already known to the organisation.Please contact me for more information.Statement of Work: An alternative solution to the normal ‘time and material’ model where contingent workers are engaged on outcome-based deliverables. From individual agreements to squad-based project teams, SoW is becoming more and more popular as organisations prepare for a post Brexit and IR35 world.Future Skills: We are helping clients use their apprenticeship levy as a solution to the skills shortage. Our Future Skills programme helps our clients organically build their own tech workforce by putting them through a technical apprenticeship. We run the programme for you and we see this as a key solution for keeping us competitive in the global marketplace.Planned and Prepared?How is your organisation preparing for the uncertainty of Brexit and a private sector IR35?Harvey Nash Recruitment Solutions offers these services and more, and is already helping businesses prepare for the unknown. Contact us today to discuss your recruitment strategy and resourcing needs.

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