If reforms to off-payroll rules in the private sector go ahead in April next year, responsibility for determining a contractor’s IR35 status, and ensuring the correct taxes are paid, will switch from the contractor to the end hirer.

As a result, there are a number of areas where agencies (and end hirers) are exposed to risk. This is why your IR35 status may change. It’s important to understand the issue from the perspective of your end hirer and employment agency so that you are in a stronger position to know what options are available to you.

What happens if the end hirer makes an ‘outside IR35’ decision?

Whilst this may be good news for you as the contractor, it may not be such good news for your agency. That’s because a successful challenge by HMRC would mean liability for unpaid tax could rest with them, even though the end hirer made the ‘outside IR35’ status determination in the first place.

Agencies may, therefore, decide to mitigate liability for unpaid tax by agreeing with the end hirer that all contracts/roles will be assessed using a reliable, insurance-backed assessment tool, agreed between the parties. Our parent company, JSA Group, has formed a strategic partnership with Qdos and other companies which provide insurance-backed assessment tools for organisations wishing to retain PSC contractors where possible.

What if the end hirer makes an ‘inside IR35’ decision?

This can be problematic if there is more than one employment agency in the supply chain. Even if the worker is treated in a compliant manner by the end hirer and the next agency in the supply chain, there is still a risk that a contractor could be paid by another party (further down the supply chain) as an ‘outside IR35’ contractor. Liability moves up to the end hirer if the agency can’t or won’t pay HMRC if it’s deemed that unpaid tax is due.

As a result, agencies and end hirers may decide to mitigate the risk by utilising contractors through a compliant PAYE model such as an Umbrella company. Again, JSA Group provides a compliant, FCSA-accredited Umbrella company so we are well-placed to help contractors, agencies and end hirers if this is a preferred route.

Retaining talent – the elephant in the room

One of the key challenges for employment agencies and end hirers is how to retain talent and manage costs whilst working compliantly. It would be easy for both parties to insist that contractors switch to an Umbrella company, but the reduced take-home pay this entails may mean end hirers are left with a skills gap or the risk that talent might transfer to a competitor.

Here to help

As specialist contractor accountants with many years of experience in IR35, we are here to help you navigate the proposed off-payroll rules.

If you are a limited company (PSC) contractor who is likely to be affected by the off-payroll rules, you can contact our account teams for more information. You can also refer your end hirers and agencies to our parent company, JSA Group, for more information on IR35 Complete from JSA, our holistic suite of solutions which are designed to help mitigate the risks associated with the off-payroll reforms.