Businesses take on risks due to IR35 preparation shortfall

Businesses could face considerable risks if they fail to prepare ahead of IR35 legislation, particularly as Brexit and coronavirus take over firm’s agenda, according to Charlie Cox, commercial director at SThree.

“Losing some high-end talent in accountancy or IT is one of the risks,” he says. “The other one is the big focus on budgets at this moment of the year. If they don’t assess people properly or assess contractors properly, and they forced them into an inside out IR35 situation, it’s highly likely that a lot of these contractors will want to increase rates as a result.”

If the existing workforce is not assessed correctly, it could end up costing more to businesses – a financial risk they need to consider.

“It’s vital that customers and contractors alike are in open communication around these changes to make sure that everyone is on the same page and supporting one another,” says Cox.

Businesses must also ensure they do assessments correctly, as part of the legislation demands the client to take ‘reasonable care’ when assessing the status of the worker. HMRC requires each client to carry out a complete determination and keep sufficient record as proof as to how the decision was reached.

“They need to make sure that when they’re making these determinations, they take reasonable care in doing so. Otherwise, a lot of liability will sit with them as a business,” warns Cox.

The global pandemic and Brexit have made it more difficult for businesses to prepare ahead of IR35 rules, taking first place on their agenda.

“I don’t think it’s high enough up the list to be deemed as important enough to start the planning process. Having said that, if they don’t start by the end of this month or beginning of December, then they may underestimate how much work there is to do to get themselves ready,” says Cox.

Above all, whilst IR35 drops down the list of priorities, businesses are putting themselves in a position where they fail to be adequately prepared, and contractors may choose to move on to an organisation that has taken this preparation more seriously, according to Cox.

To be better prepared, firms need to educate themselves around IR35 requirements.

“It’s making sure the hiring managers are aware of it and have a clear plan and process when it comes to engaging with any new contractors as well as any of their existing contract workforce,” says Cox.

Ensuring good communication with existing contract workforce remains a key measure as failure to communicate a clear plan could lead into contractors leaving the business early.

What’s more, businesses should also open themselves up as a business to understand they can still engage with limited company contractors compliantly, according to Cox.

“They just need to make sure they do it in the right way. If they do that, they put themselves in a good competitive position to attract talent that may otherwise go elsewhere.”