Top tips to prepare for IR35 as nearly three-quarters not ready for legislation

Just under three-quarters of UK organisations are not ready for the changes IR35 will bring with it, a provider of software and outsourcing services for HR has given six top tips to prepare for the new rules.

A poll conducted by MHR has found that 74 per cent are not ready for the new rules that will be implemented in April 2020.

MHR believes this will leave a company exposed to “potential rising costs and a significant skills shortage in the future.”

Neil Tonks legislation expert at MHR six top tips are:

  • Carry out an audit of your contractors

Mr Tonks believes the first step to getting IR35 ready is to conduct a full audit of all employees and contractors currently working within your business.

Get a clear understanding of how many contractors your company uses, which parts of the business use them and how important their contribution is to the business.

He explains how contractors tend to be hired by individual departments rather than via central recruitment teams so you may not know they exist. Therefore people should not assume that they will be on your HR or payroll system because more than likely they will not. They will need to be under the new rules.

  • In or out

Mr Tonks goes on to say that once you have audited the contractors you use, you need to determine if they fall ‘inside’ or ‘outside’ of the new rules. The best practice is to assess individuals on a case by case basis, though if groups of contractors are engaged on standard terms the same assessment may be applied to them all, provided you’re sure the arrangements are genuinely identical. A blanket approach to save time and money should be avoided as it can lead to serious repercussions for failing to demonstrate reasonable care to correctly classify such roles for employment tax purposes.

He advises that the Government’s Check Employment Status for Tax (CEST) service can help you determine whether IR35 working rules apply.

  • Create a clear communications plan

Mr Tonks feels it is important to communicate with your contractors in every step of the way so they are fully aware that you are taking ‘reasonable care’ to assess their status.

He said that once you have determined the employment status of your contractors it’s important to have an open conversation with them to provide reassurance and minimise any conflict and confusion.

Contractors affected by the new rules may disagree and will have lots of questions to ask. Switching to Pay As You Earn (PAYE) could reduce their take home pay and they will also be worried that it could impact future employment.

Research has found that four-fifths of contractors are more likely to work with a company that has proper IR35 policies and procedures in place, so being open and transparent will ensure you can continue to attract the best flexible talent.

  • Introduce a new agreement policy

Mr Tonks comments that the employment status of your contractors will need to be clearly outlined in an agreement policy. Businesses will more than likely need to formulate a new agreement policy for any new contractors you take on from April, while existing contractors might need their agreements to be adjusted when they run into the new financial year. Companies will need to identify which part of the business is responsible for this, what level of knowledge exists in the business, and whether additional training and support are required.

  • Consider the true cost to your business

Mr Tonks thinks HR departments should consider the cost of employing such workers could rise as a result of IR35. To compensate for their tax and National Insurance contributions (NIC) being deducted at source, many contractors may look to increase their daily or hourly rate. To help minimise the impact of any increase in fees, he advises talking to your contractors that are impacted by the change at the earliest opportunity so any cost increase does not come as a surprise and can be budgeted for.

  • Setup on your HR and payroll system

Mr Tonks concludes that if your contractors operate through an agency, it is the agency’s responsibility to deduct the tax and pass that info on to HM Revenue & Customs (HMRC). In this instance, the contractors would be on the agency payroll and not your own.

Contractors who fall inside IR35 will need to be set up on your payroll system said Mr Tonks. The best practice is to group them together on their own payroll cycle. Not only will this simplify the process but helps with your data analytics.

He explains that contractors inside IR35 are not entitled to receive a payslip but you are obliged to inform them how much tax and National Insurance (NI) has been deducted.

MHR’s poll asked 1,228 individuals who are responsible for IR35 at their organisations to gather these results.






Darius is the editor of HRreview. He has previously worked as a finance reporter for the Daily Express. He studied his journalism masters at Press Association Training and graduated from the University of York with a degree in History.