Even though the IR35 legislation has been around since April 2000, there has always been confusion about how it works and how it affects a recruitment agency. This was exacerbated in April 2017 in the public sector and in April 2021 in the private sector, when the IR35 rules changed to put the responsibility of the IR35 status on the client. Despite there being plenty of information about the changes to the legislation, there are still agencies that are not working compliantly or that are not following the updated guidance on their contract and temporary placements which could be putting them at risk. So how does IR35 affect your recruitment business?
IS THE CLIENT A LARGE OR SMALL COMPANY?
When making a placement to a private client, you need to assess whether the client is deemed to be a large or small company. If the company is under audit, it would be classed as a large company and, as such, would need to decide on the status of each placement. When the client is deemed a small company as they are not under audit then the previous IR35 rules apply where the candidate can still determine whether they are inside or outside of IR35. All public sector clients are deemed as large companies.
EVERY PLACEMENT MUST HAVE AN SDS FROM THE CLIENT
When you receive a vacancy from a large company, you should be enquiring with the client whether the placement falls inside or outside of IR35. This should be determined by the client completing a CEST test for each placement and presenting the findings on a Status Determination Sheet (SDS) which is provided to the agency. You should then follow this determination when advertising the role and paying the candidate.
IF THE PLACEMENT IS “INSIDE” IR35
If the SDS determines that the placement is inside of IR35, then the candidate is deemed to be an “employee” and as such should be paid either to an Umbrella Company or via the agency PAYE so that the correct tax and national insurance is deducted. It is advisable that the Umbrella Company is FCSA or Professional Passport registered to give further protection to the agency and client.
IF THE PLACEMENT IS “OUTSIDE” IR35
If the SDS determines that the placement is outside of IR35, then the candidate is deemed to be “self-employed” and as such can be paid either to an Umbrella Company, via the agency PAYE or be paid to a Limited Company.
PAYING CONTRACTORS INCORRECTLY
You must comply with the IR35 legislation to ensure that the candidate is paid based on the IR35 status determined by the client. If your agency pays the candidate via the wrong method (i.e. pays the candidate via a limited company when they are inside IR35) then there could be fines and payment of unpaid taxes due from you and the client. If the client makes an incorrect determination of the candidates’ status, there could also be fines and payment of unpaid taxes by the client. HOW DOES IR35
HOW DOES IR35 AFFECT YOUR RECRUITMENT BUSINESS?
If you have a robust registration and compliance process for filling vacancies, registering candidates and paying them via reputable providers, then you and the client should be protected from any HMRC IR35 investigations – maybe it’s time to check!
Over the past 20+ years, we have seen how IR35 has shaped the contract/temporary recruitment industry to ensure that candidates are paid correctly and avoid tax evasion. If you’re worried about IR35 regulations, you need to speak to us at MAYACHI.
