IR35 - What can private companies learn from the public sector?
- 3 mins read
With just under 3 months left until the private sector is asked to incorporate IR35 legislation into its working practices, we take a look at the lessons we can learn from the public sector’s IR35 roll out.
In 2017, the off-payroll working rules changed for public sector contracts such as within hospitals and schools. Now, new rules are due to come into practice on 6 April 2021 which will apply to large and medium-sized engagers in the private sector, as well as continuing to impact work engagements in the public sector.
The engager will become responsible for determining the tax status of the contract - whether it falls inside or outside of IR35. In simple terms, IR35 aims to ensure that someone working like an employee, but through a company, pays similar taxes to other 'real' employees.
If you are a full-time employee, the way you are taxed is handled by your employer through the PAYE system. Whereas a director of a limited company for example, would have more flexibility in the way profits are extracted from the business.
So, what can we learn from the public sector ahead of the private sector IR35 roll out?
Preparation is key
Get ahead of the game and use these next few months wisely, your first action point could be to formulate an internal IR35 policy. Also use this time to consider what are the IR35 risks of engaging limited company contractors? How will you determine whether or not IR35 applies to your contractors? What SDS tools will you use?
Make sure everyone knows their role
All your internal teams need to co-operate and come together to determine what IR35 best practice looks like for your organisation. Once you have written and finalised your IR35 policy, it’s critical that someone is nominated to implement it, rather than it gathering virtual dust on your hard drive.
Whichever department this falls to, it’s imperative that your hiring teams are aware of the IR35 parameters as well as ensuring any workers you bring on board understand the implications in advance. Other departments to consider are: procurement/legal teams as they may need to change existing contracts; payroll teams may need to deduct the correct amount of PAYE in real time and the finance department may model the cost implications of taking additional workers onto the payroll.
Key learnings from our own Group
At The MCG Group, our services span a variety of sectors. It’s been a key task for us to determine the working practices that worked for our education business, Simply Education, that can be transferred as best practice to our other sectors.
The upcoming Off-Payroll legislation does not apply for Simply Education as they do not engage workers who operate through their Personal Services Limited Company (PSC) and moved everyone to a PAYE umbrella engagement. This works in some sectors but for others within our Group, particularly healthcare and construction, there are lots of different variations to consider.
If you need support determining your IR35 strategy, all our clients will have access to sector specialist support via:
Designated IR35 Account Manager
Free SDS tool access
Free webinars and training
360 support in assessing the best options for your business
If you want more information about how our solutions can help support your IR35 strategy, please get in touch.