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Recruiter's guide to IR35 - what agencies need to know​

Now that the HMRC has announced the end of the ‘soft landing period’ for the IR35 legislation, the need to comply has become more heightened than ever with financial penalties in play.​

As you need to stay ahead of your compliance, we’ve compiled this guide to outline what your agency needs to know about IR35 and how you can meet your statutory requirements.

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Changing IR35 legislation brings challenges for everyone in the Recruitment industry​

At Access, we’re dedicated to serving the recruitment industry and helping you with every need - including all the information you need on the IR35 regulation, as it requires recruitment agencies to work hard to stay compliant amidst these rules. So, we’ve created this guide to IR35 for recruiters explaining how it affects you, what it means for your business, what you can do to stay compliant as the ‘soft landing period’ has ended and how we at Access can help maintain your compliance…​

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Everything you need to know about IR35 for recruiters​

What is IR35?

How does IR35 affect recruitment agencies?

Does IR35 apply to employment businesses?

What does IR35 mean for contractors?​

Who’s inside and who’s outside IR35?​

What’s the criteria for small business client’s being exempt from IR35?​

What is IR35?

IR35 is a set of rules implemented by HMRC that are designed to reduce tax avoidance by contractors. Previously employees could operate through intermediaries, such as Limited Companies, while still working full time for a business thereby paying less tax and National Insurance. IR35 aims to crack down on contractors doing this.​

​It was first introduced to the public sector in 2000 with contractors taking on the responsibility of declaring their IR35 status. In 2017 further measures were introduced meaning the onus fell on both the contractor and the employer. IR35 is now due to be rolled out to the private sector in 2021, shifting responsibility onto recruitment agencies who are liable for determining contractors’ IR35 status.​

How does IR35 affect recruitment agencies?

From the 6th April 2021, recruitment agencies have had to take on the responsibility for determining which contractors fall within IR35. This applies to medium and large businesses only, with small businesses exempt from the new legislation.​

PAYE and NI contributions from workers within IR35 will have to be deducted at source from the ‘fee payer’, i.e. the recruitment agency or client.​

Does IR35 apply to employment businesses?

The responsibility of complying with IR35 ultimately lies with the end client, meaning they must make the ‘Status Determination Statement’ (SDS); however, many employment businesses are finding that clients are turning to them for assistance.​

Employment businesses, therefore, are already reporting an increase of administration work required, while some are also stating this to be an opportunity to add value and a brand-new revenue stream. For any company offering SDS services to their client, appropriate training for their staff must be initiated to ensure reasonable care is taken.​

The current challenges faced by employment businesses:​

  • Knowing your client​
  • Increased cost of business​
  • Commercial pressure​
  • Contractual pressure and risk​

What does IR35 mean for contractors?​

IR35 reform has created a range of challenges for contractors, most notably that contractors will suffer from less take home pay.​

​The financial benefits of working under a Personal Service Company (PSC) will become limited and might not even be worthwhile for many contractors. Many contractors have moved towards umbrella companies and/or ceased to operate their own companies altogether.​

​If a contractor is working through a PSC and moves to a permanent employee, how does IR35 work with regards to temp to perm contracts?​

​If the contractor regarded the company as a client and vice versa, and then, when recruited as an employee, the relationship changed, and they received all the benefits of permanent employment then this is acceptable.

Who’s inside and who’s outside IR35?​

Let’s keep this simple:​

Inside IR35 are contractors who should be paying employed levels of tax.​

​Outside IR35 are contractors who can pay themselves a combination of salary and dividends which can be more tax efficient.​

What’s the criteria for small business client’s being exempt from IR35?​

To qualify (does not include public sector bodies) clients must meet two or more of the following criteria:​

  • Annual Turnover not more than £10.2 million​
  • Balance sheet total not more than £5.1 million​
  • Number of employees not more than 50​

The small company has no obligation to tell the next party in the chain that it is a small business.​

Recruitment businesses: APSCo’s take on how to tackle IR35 in 2021​

Back in 2019, Tania Bowers, General Council from APSCo, a trade body for staffing professionals gave their expert advice to recruiters about IR35 in light of the changes in 2000 and 2017 and the upcoming changes in April 2021 which impacted tax implications.​

Tania highlighted the helpful tools that the HMRC provides to help with IR35.​

Access Pay and Bill was ahead of the game in providing software for recruiters that helps recruitment businesses with IR35 and compliance.

What our customers says...

Contractors and interim managers play an essential role within our economy, especially in periods of transitions and uncertainty. The planned changes to taxation could significantly impede labour market agility at a time when UK businesses need most of it.

What our customers say...

The chancellor's smash-and-grab approach to taxing the smallest businesses is short-termism on steroids. It is a short-term tax grab what will do lasting damage to the economy by taxing out of existence the smallest and most agile businesses.

Chris Bryce, CEO, Association of Independent Professionals and the Self-Employed

What our customers say...

For all the government's promises to support independent workers, but announcing private sector IR35 reform the administration has shown, yet again, that it is more focused on squeezing the highest amount of tax out of contractors, not necessarily the right amount.

Seb Maley, CEO, Qdos Contractor

What our customers say...

Organisations should begin by reviewing their existing contingent workforces to determine which employment models are being deployed. In addition, Samatha Hurley advises employers to engage with the recruitment supply chain to chain to discuss which riles are likely to be affected and to determine if workers with those skills are thin on the ground or easily replaced. She also recommends ensuring IT systems and internal processes are in order to cope with the new rules, stating that 'to be forewarned is to be forearmed'.

What our customers say...

The government's decision to delay the introduction of the new IR35 rules to the private sector until 2020 (now deferred to 2021) shows that they've listened to the warnings of experts and industry leaders. IR35, in its current state, will hurt innovation, productivity and ultimately the economy. We hope HMRC will take this period to reflect upon the deeply flawed regulation and make the necessary adjustments to support, not hinder, the UK's business and contractor communities.

Colin Morley, Professional Services Director, Harvey Nash Recruitment Solution

Latest IR35 insights from Access Pay & Bill​

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How can Access Pay & Bill help recruitment agencies with IR35?​

Access Recruitment were ahead of the game back in 2017. It quickly developed a system to allow its users to process inside IR35 placements through its Recruitment Pay and Bill software. ​

Access Pay and Bill software is designed specifically for recruitment agencies, allowing businesses to quickly and easily pay workers, contractors and intermediaries, as well as billing clients efficiently and flexibly to their needs to enable earlier cash collection for you.​

With our knowledge of the recruitment market and IR35, we’ve ensured that you can easily monitor and assess contractors’ IR35 status and reverse it where necessary.​

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How can Access Pay & Bill help recruitment agencies with IR35?​

  • Providing IR35 compliance since 2017 – it is not new to us!​
  • The market-leading solution, paying 400,000 workers weekly​
  • HMRC private Sector IR35 specifications covered​
  • Simple tick box to easily place contractor or assignment in or outside of IR35 ​
  • Timesheets, payslips are automatically generated against contractors' IR35 status​
  • Easily reverse IR35 status​
  • Tracks specific client info and allows assignment specific IR35 designation. Such as, a client with a mix of roles within one week can submit their timesheets and Access Pay and Bill will move them in and out of IR35 processing the correct tax day to day or even hour to hour​
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Access Pay and Bill software is IR35 compliant and future-proofed against further regulatory changes​

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