8 things recruiters need to know about IR35

Around 60,000 medium and large-sized engagers and 20,000 recruitment agencies will be affected by the changes to IR35 off-payroll legislation, which mean that from 6 April, businesses in the public and private sector engaging workers through intermediaries, must identify whether the worker is classified a direct employee for income tax purposes.

David McCormack (pictured), CEO of HIVE360, an employee benefits and outsourced payroll provider which operates extensively in the GLAA* and industrial recruitment sector, says there are eight things recruiters need to know about IR35 now:

1. The changes to IR35 legislation mean that after 6 April 2021, businesses in both the public and private sector engaging workers through intermediaries must identify whether the worker is classified a direct employee for income tax purposes.
2. One thing is certain - the new IR35 off-payroll rules mean there will be more tax to pay.
3. IR35 applies to the end-user, so unless that end client is a small company, then IR35 applies, and the business must apply the rules according to the client's determination of status.
4. If a worker is deemed - by their activity or by the end client - to fall under IR35, then any claim against the Employment Allowance is disallowed. This means intermediaries who knowingly use the mini umbrella model with a client that has deemed supply within IR35, that both the business and the client is exposed to tax risk.
5. If the worker provides services to a public sector client, or a medium or large-sized private sector client, they should get an employment status determination from the client, together with their reasons for that determination.
6. The financial burden will be demanding - recruitment businesses running an in-house payroll of 400 workers will add over £30,000 each year in administration and resource costs. Those using an umbrella company to pay workers are forcing workers to carry the burden of processing costs on average £20 per worker per week - that's around £1,000 a year based on an average £18,000 salary.
7. Recruitment companies have three options - either return to in-house payroll, cut workers' pay, or outsource payroll to a recommended PAYE-compliant specialist.
8. If agencies offer workers a fair comparable PAYE rate, the workers are better off financially being paid via a PAYE model - to work it out, deduct the weekly fee and all costs of employment going through an umbrella company and see the real ‘take-home pay' for workers. Obviously, if there are hidden tax schemes behind the umbrella (mini umbrella, micro umbrella or elective deduction models sometimes called Hybrid), then it's likely that agencies won't offer a directly comparable PAYE rate.

Hive360 is a GLAA (Gangmasters and Labour Abuse Authority) license holder and champions a new model of employment administration for the UK market. It is leading the way in innovating employer engagement via its suite of employee benefits that match individual business requirements with a tailored, personal solution, to provide a ‘bridge' between an employer and its workforce with pioneering technology-based solutions.

For more information: Hive360 | Payroll & Benefits Reimagined