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What is the best IR35 solution for recruitment agencies and contractors?



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What is the best IR35 solution for recruitment agencies and contractors?

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Most of us were hoping against hope that the Budget Statement would stay the execution of the IR35 reforms. Considering the fact the trial version of the ESS tool is not up to the mark and we do not yet have the final version of the Finance Bill (expected on 20 March), recruitment agencies will have a difficult time moving forward with the IR35 reforms. It also seems that the Apprenticeship Levy is here to stay.

With the intermediary reforms, recruitment agencies are facing a momentous change and many agencies are not prepared for the vast amount of work that needs to be undertaken. The PSC landscape is also experiencing an upheaval, which will make the core task of even recruitment more difficult. 

There are a number of ‘solutions’ in the market that help recruitment agencies take care of the payroll and compliance, but it is not easy to determine which solution would work in the long run and which would possibly expose your company to greater risk. Recruitment agencies are also likely to be approached by businesses or individuals using models that circumvent the law.

While there may be variations within the solutions, the genuine ones fall under two main categories: 

  • Agency payroll
  • Umbrella solutions 

Agency payroll solutions focus on taking care of the pay & bill for the contractors while complying with the IR35 reforms. A complete solution would include the evaluation of an assignment’s IR35 status via HMRC’s ESS (Employee Status Service) widget,  Calculate, deduct, pay taxes and submit RTI reports, and run the pay & bill according to the new rules. Additionally, the solution provider can also help with query resolutions and helpdesk support for your contractors. 

The future of umbrella solutions can work as an interim solution. As the contractors/employees working for umbrella companies are outside IR35, it is possible to save the contractors more money. This can work as a blanket solution, removing the need to check the IR35 status of various assignments and taking care of the accounting and compliance tasks related to the IR35. However, it is possible that many contractors may want to retain the option of continuing as PSCs. For recruitment companies that have a large proportion of workers who want this option, the umbrella solution may not be viable. 

Need help?
We work for some of the leading staffing agencies in the UK and have been preparing for the IR35 reforms for months. Our experts have been visiting recruitment agencies in the UK, offering specific advice tailored to the specific scenarios faced by the company. Please get in touch with us for a free, no-commitment chat around the challenges raises by IR35 reforms and possible solutions

Pom Chakravarti

Call 07870 678 557 or email pom.chakravarti@qxltd.com.  

Kunal Shah

Call 0758 4651087 or email kunal.shah@qxltd.com.

Other important IR35 related questions recruitment agencies must ask:

  1. How will the Apprenticeship Levy impact your recruitment agency? 
  2. Are your clients and contractors aware of all the changes that are happening? 
  3. How many public sector agency workers will be lost as a result of falling within IR35?
  4. Will contractors ask for higher pay rates to offset the Employer’s NI?
  5. Do you have a plan in place for paying the invoices for work done before April 6?
  6. Have you checked out the public beta version of the ESS digital tool by HMRC?


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