It's not just individuals working through personal service companies who are affected by IR35. The agencies who introduce them and the client companies for whom they work are also being hit, write Rod Davies and Daphne Marler.
Not all these parties have got the message.
Accountancy recruitment agencies are at different stages of formulating their approach to IR35. Some agency staff know nothing about IR35 and are working as before. Some are still discussing what to do with their advisors. Some have what they call ‘IR35-friendly contracts’ – which are not.
Still other agencies have given up. Their employees are now directly employed and the agencies will have to deal with their PAYE, holiday and sick pay, Working Families Tax Credit and so on.
Some contractors continue as before, thinking the regulations will not affect them. Other individuals with a mixed portfolio of work, are taking themselves out of interim management as much as possible.
But as it is the contractors who are the ones who will pay the tax and NI if their company gets it wrong, they need to understand the rules.
The onus is largely on the contractors to understand the rules and make sure that everyone else does too.
The Revenue’s approach to interim managers and temporary accounting assistance, is, quite simply, that anything that looks vaguely like employment should be taxed under PAYE. This means the agencies and the clients are not responsible, and can try to organise things to suit themselves without really considering those who are most affected – ie the contractors.
So far client companies generally have not been interested in or have not been aware of the new IR35 regime. As it is they who pay (via an agency or otherwise), they need to understand as well. It is in everyone’s interest to understand the shift in the way the market is going so we can all take the best advantage.
Clients have used interim managers as inexpensive consultancy service, and recruitment agencies often use this as a unique selling point.
Clients in particular need to understand now that contractors put forward by an agency are likely to be employees of that agency, and the agency will be responsible for the quality of the work which they perform. Clients will need to enquire about the agency’s professional indemnity insurance, for example.
When clients have before them a contractor referred by an agency who works through his or her own company, they will need to understand the rules are different. They will need to understand that the contractor will operate as a consultant, and it may be more appropriate for the rate for the work and the contract to be negotiated directly between the end client and the contractor’s organisation.
The agency will then invoice an introductory fee rather than take a percentage cut. The contract will define the work to be done, access to facilities and by when work is to be completed.
Time sheets will not be appropriate, nor will fixed hours, nor the application of any restriction generally imposed on employees.
Overall the market will redefine itself into those who really are employees and those who are consultants, and the Inland Revenue will then have to find another way to cause us grief.