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It’s no surprise that contractors are nervous about IR35. It is a complex piece of legislation which will have a direct effect on the take-home pay of many private sector contractors when it is introduced from April 2021. A lack of government guidance and negative media coverage has contributed to continued uncertainty amongst freelancers. This uncertainty has also made it incredibly difficult for recruitment agencies to confidently provide contractors with the right advice.

Our research shows that contractors are more likely to work with recruiters and hiring businesses that manage IR35 well, so here we’ve detailed the five things agencies need to do to ensure contractors feel supported, through to April 2021 and beyond.

  1. Become a trusted partner
    Recruiters can position themselves as contractors’ go-to resource on IR35 compliance, by helping them to understand their employment status assessments, secure specialist support when necessary and keep open communication channels with hirers. This will build trust with their existing contractor base but also set themselves apart from competing agencies who are not taking a proactive approach.
  2. Seek specialist support
    The biggest concern for many genuinely self-employed contractors is that they will be wrongly caught inside IR35, which would not only lead to a cut in take-home pay, but also leave them concerned about the risk of further investigation by HMRC. Assessing employment status is a complex skill based on a deep understanding of case law, which most recruiters and hiring businesses are unlikely to have in house.Partnering with a reputable, specialist law firm can give all parties peace of mind by ensuring that end clients take reasonable care and that their contractors are treated fairly.
  3. Invest in training
    Even within recruitment, there is still much confusion about how IR35 works and what the changes will mean. In-house training is hugely important for agencies that want to be able to face questions from contractors and clients alike. Contractors will value clarity and recruiters’ ability to engage in open and honest conversations on how it will impact them. Don’t be surprised if contractors choose the team that they feel can offer them the right level of guidance and support.
  4. Protect against non-compliance
    Recruiters also have a role to play in helping contractors navigate the currently unregulated umbrella market. Intermediaries posing as compliant umbrellas companies are aggressively targeting contractors caught inside IR35, offering a ‘too good to be true’ percentage of take-home pay, often up to 90%, or an aggressive view on the employment status of disguised employees. Some of these intermediaries are, in fact, tax avoidance schemes and often operate from outside the UK, while paying contractors through loans or offshore fund. This carries risk for the contractor if they are investigated by HMRC, but could have serious repercussions for the agency if the non-compliant supplier goes bust as the liability and therefore debt will be transferred up the supply chain to the agency or end-client. To avoid this, recruiters should be carrying out due diligence on their supply chain and any third parties they choose to partner with, ensuring compliance and asking for reputable accreditation.
  5. Take reasonable care
    HMRC has been clear since it announced the IR35 changes that it expected all involved to take reasonable care in making determinations related to off-payroll working rules. If recruiters take the time and effort to make accurate employment assessments, engage in open and honest dialogue and proactively protect against non-compliance, they can ensure contractors feel supported, negate tax risk and even gain a competitive advantage.

If you would like more information on how we can support your agency and the recruiters you work with, please get in touch.


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