What do the latest ‘IR35’ tax legislation changes mean for hiring managers? Can you still hire finance and accounting temps? And how can you avoid being fined by HMRC?
Rob McKay, who leads our specialist interim recruitment team, explains how organisations can hire finance temps the right way, within the law.
What’s the background to the new IR35 changes?
The ‘IR35’ tax legislation came into force for the private sector on 6 April 2021 for the new tax year. IR35 is basically shorthand for the UK tax legislation that is designed to identify genuine contractors.
It closes a tax loophole, whereby the majority of contractors would offer their services via an intermediary, like a limited company. Essentially, treating themselves as a company meant contractors paid corporation tax at around 20% as opposed to higher-rated employee tax. Another big factor for HMRC was that no National Insurance was payable.
What’s changed in the IR35 legislation?
The Government has shifted the emphasis on who is liable for deciding whether a role sits inside or outside the IR35 legislation. Before the liability sat with the contractor, now the liability and potentially hefty fines sit squarely with corporations.
What does being inside or outside IR35 mean?
Being ‘inside’ IR35 means the contractor is seen by HMRC as an employee for tax purposes. Being ‘outside’ IR35 means the contractor is seen as genuinely self-employed by HMRC and can enjoy lower tax status.
What does that mean for accounting roles?
Most accounting roles will now fall within IR35. For example, if you’re a contractor signing off a set of statutory accounts, you have authority on behalf of the company and so would be classed as an employee for tax purposes. If you are managing someone, that role would also fall within IR35.
If you’re genuinely running a business with a number of clients, working on concurrent projects, this would fall outside IR35. But if you have one accounting contract role at a time, then HMRC will now see you as an employee for tax purposes.
The basic rule is if organisations are happy to accept ‘substitutions’ then this sits outside the legislation. For example, Compass provides catering services for PWC. But PWC doesn’t get to say which chef works particular shifts or which serving staff are working. But usually, for an accounting role, you’ll be interviewing specific people for specific roles.
So can I still hire a temporary employee or contractor?
Absolutely, you can still hire hourly and daily-paid temps and contractors who are not counted on your permanent headcount or payroll. The key change is to the tax status of temporary and contract workers. So even if your role falls within IR35, you can still bring that person to work for you on a shorter-term contract as long as they pay tax as an employee via PAYE.
So how can I easily hire a temp or contractor without being fined?
SRM Recruitment offers organisations a PAYE solution for hiring temps and contractors. That means we offer a fully outsourced payroll function, taking the headache out of paying tax on behalf of your contractors in a way that is fully auditable.
The advantage of using a reputable PAYE solution is that organisations have complete transparency on where and how tax is paid. So it really takes any IR35 worries out of the equation completely.
We still recommend that clients go through a determination process to assess if a role is inside or outside IR35 but if there is any doubt, it’s always recommended to go ‘inside’ the IR35 legislation.
A safe, scalable solution for outsourced payroll
SRM already offers this outsourced payroll PAYE service to a range of organisations of all sizes. We have a strong balance sheet and we are able to securely run a regular payroll for our clients. The process is auditable and transparent.
“Rob has gone above & beyond by providing specific guidance on IR35 to myself & wider HR team, helping us translate what it means for our business. A trusted recruitment partner!”Nicola Hollands – Talent Acquisition Partner at Capital Dynamics
What’s happened to umbrella companies?
We are advising organisations not to employ contractors via umbrella company status. Remember, the risk still sits with the hiring organisation, not the umbrella company.
Using a PAYE solution via an umbrella company provider can leave organisations in a less than robust position from a tax perspective. It’s worth noting that the industry is self-regulating with only 50 or so companies opting for any form of accreditation. Accreditation does not give powers to sanction or investigate.
Fines are still payable by the hiring organisation, not the umbrella company, or the umbrella company provider.
What do finance and accounting temps think about the IR35 change?
Most accountants understand why the loophole is being closed. The only push back we’ve experienced is from those in quasi IT/finance roles. Accounting and finance professionals still want to work on daily rates and enjoy the flexibility this brings so we don’t anticipate any shortage of supply. Candidates tell us they want a job first and foremost and aren’t worried about the mechanics of how they get paid.
The key facts about hiring flexible workers under IR35
In summary, you can still hire flexible workers that won’t affect your permanent headcount numbers by using a robust outsourced payroll / PAYE service.
Steer clear of contractors employed via an umbrella company or services provided by the unregulated umbrella company market.
Get In Touch
If you need help to source the best interim resource in finance and accountancy or are looking for your next role, get in touch with Rob McKay, director of interim recruitment today on +44 (0) 20 3637 7808, email firstname.lastname@example.org or connect with him on LinkedIn.