Understand IR35 and win the competition for contractors

As of April 2021, changes to IR35 legislation came into effect that changed the way medium to large-sized businesses engage interims and contractors. It is important to understand the updated rules as the responsibility of determining whether a contractor works inside or outside of IR35 now lies with the end-user business and not the contractor. 

Getting the determination wrong can lead to not only fines from HMRC but could also incur unnecessary costs to the end-user business. That said, businesses should not be put off using contractors as they are an invaluable resource for a wide range of projects. 

That’s why we have put together a short guide to IR35 and how to ensure you’re getting the best-quality IT contractors who are completely IR35-compliant to support your business.   

What is IR35 UK?  

IR35 is a piece of tax legislation introduced in 2000 to ensure that contractors operate as true limited companies providing a service and pay a fair level of National Insurance and tax. This was aimed at targeting contractors who were termed ‘disguised employees’, and were for all intents and purposes functioning as full-time employees without paying the associated taxes. Those ‘disguised employees’ were deemed to operate inside IR35, and those who truly worked independently through their own limited companies or umbrella companies were deemed outside of IR35. 

The parameters of IR35 haven’t changed, however the rules regarding who determines whether a contractor is inside or outside of IR35 has. Previously the responsibility lay with the contractor to self-declare their compliance, and after April 2021 it is now the end-user business’ responsibility to determine whether contractors are operating inside or outside of IR35.  

How does this affect engaging IT contractors? 

There are many approaches to this. Businesses could choose to take a risk-averse approach and either break all current contractor engagements and only use permanent employees, or deem all contractors to fall within IR35. Although these may seem like safe choices to avoid scrutiny and fines from HMRC, getting rid of all contractor engagements could seriously set your projects and business back. Similarly, although less likely, determining the statuses of contractors incorrectly within IR35 can still incur fines if HMRC deems your contractor to be outside of IR35 – it would also mean that you’d paid the additional costs of a full-time employee when you could have only been paying for their contracted time.  

Doing your due diligence to ensure your contractor is rightfully operating outside of IR35 will mean you get the full services and cost-saving benefits of your contractor without fear of fines from HMRC.  

There are multiple tools available to help you correctly make this status determination, including the government’s own tool or you can view our guide here. 

How to engage a contractor  

Engaging a contractor can be hugely beneficial to your business and your projects, they have a wide range of specialisms and can support a broad range of projects and operational functions. Contractors were particularly useful during the pandemic when organisations sought to keep overheads low whilst maximising on specialist projects. Given the success of this it is likely that many will continue to use contractors as a cost-effective means of resourcing specialist projects whilst remaining agile. 

While there are many ways to engage a contractor, one of the best ways to ensure you get access to contractors with skills that align with your needs is to get in touch with a specialist IT contract recruiter, like IntaPeople! 

At IntaPeople we have deep networks of high-quality contractors who specialise in STEM occupations. Our insight and experience in the contract market means we know how to identify the technical skills you need for your project. 

Find out how we can help you find top contractors to meet your needs today and in the future! 

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