Engaging, informative and lively are just a few of the adjectives that come to mind when reviewing last week’s full-day IR35 conference organised by Lawspeed, the UK’s leading law consultancy dedicated to the recruitment and staffing industry.
With April 2020 bringing significant changes affecting the recruitment industry, including the introduction of new IR35 rules, key information documents and changes to the AWR, senior recruiters heard how these would have a major impact on their operations and hiring policy.
Different engagement options
Attendees were guided through the new IR35 rules and were given a detailed explanation of the pros and cons of alternative engagement options and the specific regulatory, practical and contractual requirements. They also learnt about the potential tax implications and were warned to look carefully at insurance policies stating to cover IR35 claims.
The Lawspeed team explained to the audience that “new or different engagement options will need to be carefully considered, with a greater emphasis on supply chain compliance” before running through the various different models. Governance aspects included who is the decision maker in determining if a new contract role is in or outside the scope and what is a status decision statement, with an expose of how liability works.
Theresa Mimnagh, associate director of Lawspeed, said “it’s only if attendees understand the risks and implications that they can really grasp the impact and what needs to be done. It is not as straightforward as some people may think.”
Peter Lappin, an employment status expert and part of the Lawspeed team, said of the arguments about mutuality of obligation,“This area is greatly misunderstood and many reports have entirely missed the point. Putting a clause in a contract that there is no mutuality of obligation not only will have no effect at all if the arrangement in fact involves mutuality, but could also expose the contract as a tax driven document and at the same time potentially interfere with payment arrangements.”
Lee Manning, senior partner at the accountancy firm Raffingers, emphasised the financial and tax implications of the IR35 changes, with agencies set to bear the brunt of employer NIC charges, so forcing change.
He went on to recommend recruitment agencies review all of their PSC contractors to see if they are caught by IR35. Only after a review could the various alternative options be considered.
Check IR35 insurance policy wording
Stuart Armstrong from Lockton Insurance Brokers acknowledged that whilst recruiters were naturally concerned about tax implications of IR35, very few were thinking about its impact on insurance. The industry had seen a recent growth in policies claiming to help reduce IR35 exposure but as yet none exist to protect agencies and hirers against PAYE and NIC exposure. Even if a policy were to be created it would amount to nothing more than an inducement to undertake contract reviews, when policy conditions were unlikely ever to result in a pay out.
Armstrong explained that the umbrella sector had resulted in numerous employment related claims on insurers such that insurers were pulling out of the market, and premiums were on the increase. “All agencies should carry employers liability insurance, and should be aware that premiums will no longer remain as low as in the past”.
He went on to warn recruiters to be very wary of what policies they purchase. “Contract review is often what the provider is seeking to achieve. However does the policy do as it says on the tin? If it doesn’t unconditionally insure against PAYE and NIC as well as penalty liabilities, recruiters could be wasting their money.”
HMRC and the CEST tool
Senior recruiters were keen to hear Justin Giles, IPD Employment Status and Intermediaries Policy at HMRC, explain Check Employment Status for Tax (CEST) service tool. HMRC has created a new prototype which Justin demonstrated, explaining some of the key changes to a ‘lively’ audience.
The discussion included some key points on status such as mutuality of obligation. On this point Justin confirmed that whilst others disagree with HMRC’s view, mutuality exists in every contract, the very point that Peter Lappin had explained earlier.
Justin concluded, “it was good to hear the challenges and concerns that recruiters have about the upcoming reform to the off-payroll working rules, and understanding employment status. The new tool should be available in December.” He promised to take various points back with him to the HMRC team as constructive feedback.
Other changes for April 2020
Although IR35 was the main focus of day, recruiters were also reminded to prepare for a series of other changes. Ben Bruten and Ian Jordan from BEIS explained the proposed changes to the role of the Employment Agency Standards Inspectorate and the agency worker reforms proposed in The Good Work Plan. They explained the ‘key fact’ document, right to request a more stable contract, written statement of particulars, single labour market inspectorate and holiday pay in their highly informative presentation.
Drilling down into the post event feedback showed that many recruiters were worried about the impact, with cost, administration and tax liability at the heart of their concerns. Some were considering using umbrella companies and contract review service providers as a ‘simple’ solution. Others were now taking a different view given the complexities of chain compliance requirements, the need for transparency and concerns over tax conformity following HMRC’s all-inclusive chain liability powers also proposed for 6th April 2020.
Adrian Marlowe, MD of Lawspeed said, “Because of these tax changes chain compliance is becoming a key component of a hirer’s decision making process. Being able to demonstrate a safe pair of hands is therefore critical.” Referring to Lawspeed’s sister company Standards in Recruitment, Adrian added, “The best way to do this is through independent accreditation following targeted compliance audit, not trade body membership. The new IR35 demands a fresh mindset in many ways.”
The audience were reminded by the Lawspeed team that if contractors cease to work through their PSCs they can no longer opt out of the Conduct Regulations. Those regulations would apply as would the Agency Workers Regulations.
Adrian also said “IR35 will have an impact on umbrella companies as well as regular supply agencies in a host of different ways”.
The conference concluded with Lawspeed advising recruiters to check all bases and prepare now. This should include recruiters having early discussions with clients and contractors as well as preparing internally by reviewing contractual arrangements, duration of assignments, termination provisions, understanding the commercial position and risks. Importantly, negotiating before the event is always easier than after.
Recruiters were left in no doubt of Lawspeed’s expertise in this area. With delegates giving the conference an overwhelming average of 4.5 out of 5 rating Marlowe concluded “this was a good event to hold and at the right time. The combination of detail, analysis and practical advice from all presenters has left the audience with a rounded understanding of all the issues, thus well-armed to tackle the challenges.” This was confirmed by delegates. As one put it “Before the conference we needed to know the overall impact on a pure contract agency in the financial sector. We left with a clearer idea of how to progress.” Another said that before he came he wasn’t too sure what he needed to be concerned about but left “knowing the need to communicate the changes to clients and an understanding of the extra costs/admin burden the new regulations will incur.”
Marlowe concluded “This was our objective. Lawspeed is planning to hold further sessions in the coming months.”
With over ninety attendees, the conference was sponsored by Locktons insurance brokers, Raffingers accountants, Initor Global payroll specialists, Standards in Recruitment and the Association of Recruitment Consultancies.