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IR35: Are companies aware of Supply chain risk?

13 March 2020

By Carrington West

IR35: Are companies aware of Supply chain risk?

IR35 is now almost upon us, and one of the main complaints we have had from contractors and sub-contractors is that many companies are being slow to review contracts and make status determinations.

The concept of IR35, on paper, should be pretty straight forward to implement. A contractor deemed outside IR35 continues as they are with only some adjustments to the way they set up their own company and tax liabilities, and those deemed inside IR35 receive their net income instead of their gross salary and the employer pays their tax direct to HMRC. In reality, the burden on a principal employer is far greater. The process of reviewing contracts, making determinations, assessing liabilities and then adjusting contractual relationships with individuals or agencies to be compliant has proved quite daunting for many.

The problem has been compounded by many not considering their supply chain and associated liabilities. A huge proportion of the UK’s contract workforce are in technical roles both on and off site and there is a concern that some sectors such as construction, may see project costs rise as a result of IR35, especially in the short term.

The key steps are firstly identifying contractors supplying their services through an intermediary is and completing due diligence on the supply chain. This includes the financial position of the entities in the chain. Secondly, it is essential that status determinations are then communicated to everyone within the contractual supply chain. Supply chain transparency is essential to mitigate risks.

Whatever the outcomes and repercussions, it is clear that end employers should already be knee deep in the review process if they are to meet the looming April deadline for compliance. Whilst HMRC have said there will be a “soft-landing” approach over the next 12 months to those that can prove they are trying to meet requirements, the process of review and assessment needs to be completed as a matter of urgency to avoid any potential disruptions to the labour supply chain.

The preparation process should include the following:
1) Engage with stakeholders. Engage with your contractors, managers and agencies to tell them what you are doing and discuss how you can work together.
2) Conduct an audit Understand who your contingent workers are, how are they engaged, what the contracts look like, how they are paid and what the associated risks are.
3) Create a process. Following a process which allows fair and thorough assessments of workers and safeguards the organisation against any liabilities, with minimal impact to the day to day operations.
4) Implementation. Consistent implementation involving all stakeholders ensuring ‘Reasonable Care’ is demonstrated.

We are able to work with you to help create processes to best protect the business with minimal impact. Carrington West, along with our supply chain partners, have a huge amount of experience of navigating the legislation changes and can help your organisation further understand IR35 and its implications.

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