HR is no stranger to compliance and regulation. The very nature of the discipline means that meticulously working within legislation is integral to the role. While any HR department overseeing independent contractors will, of course, be all too familiar with current Intermediaries legislation, last month’s publication of a discussion document on reforms to IR35 by HMRC could have a significant impact on the use of these workers.   

HMRC has acknowledged the challenges associated with enforcing IR35, highlighting that better administration, compliance work, or a simple checklist is not the answer. However, it has proposed that the solution could be that employers become responsible for determining IR35 status.    

This would spell administrative changes to the operation of existing IR35 legislation, and a shift in legal liability for the classification of contractors. Whether a role is deemed to be employed or self-employed depends on whether it is deemed to be under the ‘supervision, direction and control’ of the employer – and only contractors that are not will continue to operate outside of IR35.  

This would mean that employers could be saddled with the burden of determining if engagement is inside or outside of IR35, and this responsibility will inevitably fall to HR. What’s more, if you exercise your right to classify a contractor as outside of IR35 legislation, and HMRC subsequently disagrees with your decision, then you as the engager will be liable for outstanding employment taxes and national insurance. So what is the answer?

I know that HR teams will be unable to operate based on this level of unknown liability. Undoubtedly,  employers will err on the side of caution and pigeon-hole all contractors as falling within the legislation – inadvertently creating false-employment. There will also be an immediate effect on talent attraction, as well as a subsequent impact on rates as professionals who choose to work on a contract basis look to recoup the money lost through additional tax commitments – or even worse, take their skills abroad. Let’s not forget that contractors working through a PSC have no guarantee of consistency of work, will almost certainly be contractually obliged to provide public liability and professional indemnity insurance, and have no statutory employment rights which means no holiday or sick pay, no maternity, paternity or adoption pay and no access to benefits such as pension contributions.  

The success of many businesses rests on their ability to strategically manage a fluid workforce. While HR teams across the country have expertly used their skills to build and grow efficient, profitable and flexible workforces, changes to IR35 have the potential to throw a spanner in the works.   

Employers, contractors, and other IR35 stakeholders, have been asked by HMRC for their ideas about how the legislation can be better enforced and meet the Government’s tax targets, with submissions due by the end of next month.

In the interests of our members, the Association of Professional Staffing Companies (APSCo) will be strenuously lobbying against these proposals both in its own right and as part of the IR35 forum. We are already engaging with a number of MPs and have organised collaboration with other recruitment, accounting, contractor and end client stakeholders.

If you would like to be involved in APSCo’s end client stakeholder group, please email your interest to [email protected]. If you’d like to share your views on the proposals for reform, email your contributions to [email protected] before the 30 September 2015.

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