Cpl Life Sciences – Your Solution to the IR35 Changes April 2021
IR35 & New Off-Payroll Rules
IR35 has been in force for many years, however in 2017 HMRC changed this legislation in the public sector for off-payroll working to close loopholes that allow people working through personal service companies to avoid tax contributions, raising an estimated additional £550m. Extension into the private sector, currently estimated as costing the exchequer £1.3bn, is timetabled to come into force in April 2021. Any assignments within a medium or large private sector organisation (the definition of which is likely to be based on Companies Act 2006 definitions) will be affected.
Impact To Clients
You are responsible for deciding if the off-payroll rules apply to an assignment and must take “reasonable care” when doing so, otherwise the fee-payer liability and burden shifts to the you.
You must inform the party with whom you have a contract whether the assignment falls within the rules by latest start date of assignment or for current placements live on April 2021 by payment date. There will be a time limit of 31 days from request for clarification of decision.
Being involved in an HMRC investigation has huge time and cost impacts to all parties involved – contractor, fee payer (agency or MSP) and end client stakeholders – you want to avoid this at all costs by being compliant!
Initial reports indicate the majority of roles within Clinical Research will fall in-scope of the new legislation and therefore contractors will need to be processed through a payroll so tax/NI can be deducted at source. Most clients are looking at a business-wide approach to ensure compliance and avoid risk and liability.
You need to pre-plan for potential changes in contractor population and to minimise impact (timelines and costs) to the business; Contractors may demand an increase in rate to compensate for the NI/tax liabilities they will incur after April 2021 if moving in-scope of IR35 and will likely pass this up the chain, other contract workers who won’t accept a reduction in net pay may move on (some contractors may be drawn to working overseas or smaller businesses, etc.); Contractors may want to go permanent with the end Client which will also have a planning/cost impact.
Things To Consider
You need to decide who will be responsible for making the status decision in your business. We recommend that “super users” are trained to understand the process and the law.
HMRC have developed an Employment Status Tool for Tax “CEST” www.gov.uk/guidance/check-employment-status- for-tax to understand HMRC’s view, although it is voluntary to use, and asks questions around the below. There are also third-party assessors who can advise on the off-payroll decision.
Supervision, direction and control - Does the contractor have a line manager who gives direction to or controls how they do the work? The existence of control and/or direction would indicate a role being inside IR35.
Mutuality of obligation (MOO)- Does the client have to give the contractor work beyond the current project, and does the contractor have to accept? A true contractor should not have MOO within their contract.
Personal service / substitution - Can the contractor substitute their work or project to somebody else and do they have the correct authorisation for the substitution to pick up the work and if needed also be on-site? Being required to offer personal services indicates being inside IR35.
There are also other things to consider such as level of risk, whether the contractor is included in company events, the supply of equipment, how integrated they are to a team, etc.
Speak to your recruiter about how to work together for current and future contractors - Off-payroll status can change mid assignment so continue to have a communication plan. The fee-paying agency needs to remit the Employers’ NICs and if applicable apprenticeship levy, therefore extra cost of supply must be factored into rates for the assignment.
The criticality of the contractor, skills or role is likely to influence your decision-making. In the public sector, we have seen an increase in rates for sought after skills, reduced supply of contractors, some clients converting contract roles to permanent roles and a keen interest in statement-of-work models. We expect to see all of this when it rolls out into the private sector and you should therefore plan for this.
If you are deemed to be a small company and outside of legislation changes, you must review regularly as your status could change at any time and the new legislation then be applicable to you.
Questions to Ask:
Will your company fall into scope of the new legislation and who is your company lead on this?
How many contractors do you have and what is their employment status?
How many are currently outside of IR35 / working off payroll and what will their status be under the new regulations?
How will you assess and review your roles for IR35 classification? (Think tools, external support, who will review?)
How many of your current contractors will leave / insist on rate increases / want to go perm? How will you plan for and facilitate this?
Review & work with your supply chain - consider alternative models for engaging contract workers (PAYE / Employed / Statement Of Work) and ensure contract changes with suppliers and done well ahead of the legislation change.
Review internal compliance and onboarding procedures.
Shifting to a higher mix of permanent employees (when does headcount sign-off request need to happen? Cost?)
Employed Contractor/Hosted Model (ECM):
Cpl Life Sciences have been utilising this model since inception in 2006, and this is an effective solution for the impending IR35 changes:
Contractors are all IR35 compliant going through our payroll.
We report monthly to HMRC as requested bylaw.
Working with clients we can ensure AWR regulations are met e.g. 1st day and 12-week rights.
All contractors have at least 2 years of references, qualifications checked, proof of address, identity and eligibility to work in UK checked; all relevant documents verified in person or via Skype as require bylaw).
We have successfully transitioned contractors to employed/ full time employees of Cpl Life Sciences with no disruption to our customers and transferring them to direct permanent with the end Client is also seamless.
Works perfectly for one-off assignments through to fully functional teams that are all employees of Cpl Life Sciences – An FSP/SOW approach.
Our empirical data shows our ECM retention rates are averaging 85%, compared to freelancers at 65%.
Opens up a large pool of from permanent & contract backgrounds across all verticals.
Candidates who work under this model are full employees of CP and enjoy all the rights and benefits of that employment, which include: Salary, car allowance (role dependent), Employer matched pension contributions, £1,000 training bursary, Healthcare Insurance (Vitality), Denplan, Income protection, Life assurance, Mentoring and professional development guidance, 25 days holiday plus bank holidays, rising to 27 after 2 years’ service, parental leave and sick pay (5 days fully paid), plus access to Zeevo Health App, Perkbox and Employee Assistance Program
Scope of Employer Contractor Model:
We have successfully transitioned contractors to PAYE with CPL Life Sciences with no disruption to our customers
We have solutions for one off assignment through to fully functional teams that are all employees of CPL Life Sciences.
For larger projects we can provide whole teams through a Statement of Work arrangement (SOW)**, thus removing the IR35 risk from the client entirely.
We have a large pool of workers across all verticals who are already inside IR35.
TUPE:
TUPE rules apply to organisations of all sizes and protect employees’ rights when the organisation or service they work for transfers to a new employer. The TUPE regulations can apply when a company is sold, activities are outsourced, brought in-house, transferred or a contract for services is moved from one provider to another. Employees from the newly acquired business, service or contract will transfer automatically to the incoming employer. Their terms and conditions of employment (apart from occupational pensions) and continuity of service transfer with them and they also receive certain protections around dismissal and redundancy.
We therefore understand that any Agency workers who are currently employed would be protected by TUPE regulations. Where an employee transfers under the TUPE regulations, the following rights and obligations, powers and liabilities also transfer with them to the incoming employer:
Contracts of employment, including all terms and conditions of employment such as pay, commission and bonus entitlements, holidays, job title and function, and sick pay provisions.
The employers’ contractual provisions such as job or workplace flexibility or mobility, restrictive covenants, or restrictions on outside work where this applies
Continuity of service
Accrued entitlements such as where a bonus or holiday entitlement has built up over a period of time, but has yet to be taken or paid
Liability for the outgoing employers’ acts and omissions in respect of the transferring employees are passed across under the TUPE regulations to the incoming employer.