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IR35 changes in responsibility impact recruitment agencies

Responsibility For IR35 Is Changing – Is Your Recruitment Agency Prepared?

From April this year, if you’re a recruiter placing contractors using a personal service company (PSC) in public sector roles, it will almost certainly become your responsibility to:

  • Calculate TAX and NICs on gross as if employed after allowable expenses
  • Hold monies under 1 and pay to HM Revenue & Customs monthly
  • Report each pay-run under RTI
  • Assume liability if not done or incorrect

This is because the government are reforming the responsibility and liability of IR35 legislation so that public sector contractors no longer determine their own tax status. Instead, this responsibility will be transferred to the public sector authority.

Umbrella company workers are unaffected.


The challenge for recruiters


Ultimately the rules surrounding whether a public sector contractor is caught by IR35 isn’t due to change, however the responsibility to determine their IR35 status will. From April 6th, the responsibility will shift from the worker’s intermediary to the public authority that the worker is supplying their services to. The complications that arise for recruitment agencies lie with all the additional policing and paperwork required to calculate, deduct and pay taxes for all the off-payroll workers that fall inside IR35 and prepare and submit RTI reports for all those workers as well.


One possible outcome of this is the majority of recruiters will simply accept that all public sector contractors are within IR35 and instruct their contractors to join an umbrella service. This could mean contractors end up at a financial disadvantage from joining an umbrella company for their government contracts but having to keep their limited company open for non-government based work. In response to this instruction, contractors may simply refuse public sector roles or demand a higher rate before accepting them.


It is possible for a personal service company contractor to continue to use their own limited company whereby the necessary PAYE and NIC deductions are calculated and paid away and RTI is completed, so please contact us for more information.


The risks – and the solution


Not only will it be difficult and time-consuming for recruitment agencies to ensure all their public sector candidates are being taxed correctly all of the time, but if they get it wrong, they will be footing the bill for any unpaid taxes under the reformed legislation.


This could pose an even greater risk, since many commentators expect this new legislation could be extended to the private sector soon.


Here at Contracting Scout, we have partnered with an experienced provider offering a solution that will remove the risks and administration away from your agency. Their support services will provide a cost effective, compliant “Umbrella” style solution that will also give the contractor the ability to continue to work through their personal service company, whilst remaining 100% compliant with the new legislation.


We’ll be sharing more details on this shortly, but if you have any concerns or want to discuss how we can help in the meantime, do get in touch.