IR35 is coming – how is it going to affect your recruitment business? And what can you do about it?

Following its public sector roll out in 2017, the Government decided in last year’s budget to enforce the IR35 regulations across the private sector, too. The new rules will come into force in 2020. But what do they mean for recruitment agencies?

What is IR35?

IR35 is a change in legislation that requires contractors who essentially work as full time employees to pay the same tax as the payrolled employees. Currently, contractors benefit from significant tax breaks, as their style of employment tends to be riskier. However, for those contractors who ultimately have long-term job security, the discrepancy is perceived as unfair.

The responsibility to determine a contractor’s IR35 status now rests on the organisation that pays them – often, this will be a recruitment company.

What effects will it have?

The IR35 roll-out places a significant new responsibility on recruitment agencies. Gauging whether or not a contractor is ‘inside’ or ‘outside’ IR35 isn’t all that straight forward. It’ll likely mean requesting a lot of information from the client the contractor works for, and managing all the compliance and communication difficulties that comes with it. The client may not even have all the necessary information, and they could even simply decide to define contractor as inside IR35 to avoid having to find it.

But it’s important this reporting is done properly. Notably because, if a contractor is wrongly determined to be outside IR35, it’ll be the recruitment agency’s responsibility to pay up.

There’s also the additional accounting time to take into consideration. Time and resources will have to be spent calculating net pay over gross, deducting National Insurance and tax, and reporting more to HMRC. Fee payers will have to apply PAYE and will incur additional costs, such as employer’s NIC (which is currently 13.8%) and the Apprenticeship Levy (which stands at 0.5%).

IR35’s introduction in the public sector saw a lot of contractors having to become part of umbrella organisations to ease the process. This can have ramifications for the pool of talent available to recruitment agencies. Some contractors may simply choose to not continue working with recruiters. While the slashing of rates paid to contractors to cover additional costs can also risk contractors choosing to take their business elsewhere.

How could GrowthLine help?

At Growth Street, we’re already helping a number of recruitment agencies prepare for changes just like this.

With a number of potential new costs on the horizon – and the effect this can have on your profit margins – it’s more important than ever to have a good handle on your cash flow, and a source of cash available to help buffer any unexpected costs.

A GrowthLine can provide businesses with a flexible source of cash. It works just like a business overdraft – you can drawdown and make repayments whenever you like. Also, we’ve designed it to be as simple to use as possible by connecting up with your cloud accounting software, and allowing easy drawdowns and repayments from our online dashboard.

With the new regulations coming into place in April 2020, are you confident your recruitment company’s cash flow is fit for purpose?

To find out how a GrowthLine could help your recruitment business, visit growthstreet.co.uk or call 0808 123 1231.

Written on in Business Insights Borrowing