7 Key operational mistakes businesses make when preparing for the IR35 reforms
The IR35 reforms come into force on 6 April, leaving businesses with only a few months to prepare for major changes to their contractor relationships. Here we look at 7 key operational mistakes businesses make when preparing for the reforms.
1. Businesses only see the reforms as a headache and not an opportunity
In our experience, clients have found that a full audit of their contractor procurement process can lead to significant opportunities to change the business for the better. For example, clients have recognised that they might have too many contractors in certain areas or that one larger outsourcer might be better in terms of cost (and which would also then make IR35 irrelevant). Essentially, a good audit can mean a more efficient and less risk-prone business going forward.
However, some businesses see an audit as an unwelcome and costly exercise and so they avoid it. They got one postponement, but that’s highly unlikely to happen again.
2. They don’t give themselves enough time to prepare
The recommendations of an IR35 audit programme will often entail significant restructuring of contractor arrangements, new policies and procedures or even replacing contractors with an outsourcer, agency workers or employees. When those changes are complete, the compliance requirements for the remaining IR35 contractors must still be carried out by April 2021. All that takes time. Some businesses are just not honest with themselves about how quickly (or slowly!) they can move.
3. They incorrectly think they are exempt as a small business or overseas company
The rules around who is a small company or a wholly overseas company, and so exempt from the reforms, are complex. We’ve even had clients think it’s the size of the recruitment agency which matters, not the size of their end user company. Others have thought that adding an international company to the recruitment chain might avoid the operation of the IR35 reforms, but don’t realise that could open up a whole other can of worms in terms of international tax arrangements. Advice should be sought from the outset where the position is not 100% clear.
4. No one at the business takes ownership
Finance sees it as a HR issue, HR see it as a Finance or Legal issue, Legal see it as a Procurement issue and the managers who engage directly with the contractors at the business simply see it as a headache and something they don’t have time for. Sound familiar?
Businesses need to form cross-departmental teams to include executives from all areas of the business affected not just by the IR35 reforms, but by the services the contractors perform. Ultimately questions will be asked about the way IR35 contractors are used and if there are more efficient and less risky alternatives. So you need the areas of the business who use the contractors to be involved in the conversation from the outset.
5. Those who have ownership foisted on them are too junior
The junior HR assistant tasked to run the IR35 project might find it difficult to have an open and frank conversation with the CFO or CEO to explain that their operating model in the IT or marketing area is deficient and full of risk. The payroll controller with no experience of worker status investigations who has been charged with “sorting the IR35 matter” is unlikely to know where to start.
The IR35 audit needs a well-advised and sufficiently senior team, who can then report directly to the Board.
6. Recommendations in the IR35 audit are not implemented or are delayed unnecessarily
Sometimes the necessary changes might just seem like too much hard work and so businesses go back to sticking their heads in the sand. This is where a senior, multi-functional and empowered IR35 team can come into its own, to drive change and secure budgets in a timely manner.
7. They don’t understand that the reforms require a long-term solution
Businesses should use this initial period before April 2021 to review, fix or replace their contractor engagements. Once they have done that deep dive and have their house in order they need to implement a more efficient system for handling future contractor engagements and keeping current ones under review. IR35 technology platforms can help.
How can we help?
Doyle Clayton has an end to end compliance audit solution, including introducing our contacts to help with long term technology solutions after you have got your house in order. Please contact our IR35 expert, Declan Bradley, if you think your business might be caught by the reforms and you need to prepare.
The articles published on this website, current at the date of publication, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your own circumstances should always be sought separately before taking any action.