IR35 SUMMARY

From April 2020 the administration of IR35 will change. IR35 known as intermediaries legislation was introduced in 2000 by HMRC to stop ‘disguised employees’ from avoiding tax by operating as contractors, whilst working in a similar way to employees. The liability has mostly fallen on contractors, until April 2020, when hirers will be responsible for assessing the IR35 status of contractors.

 

Hirers Responsibility

From April 2020 Hirers across the private and public sector will be responsible for conducting ‘reasonable care’ in case-by-case assessments of contractor’s IR35 status. Hirers will be liable for these assessments meaning it is important to consider the key factors outlined by HMRC to determine whether a contractor operators ‘inside’ IR35 or ‘outside’ IR35.

 

Contractors Responsibility

From April 2020 Hirers across the private and public sector will be responsible for conducting ‘reasonable care’ in case-by-case assessments of contractor’s IR35 status. Hirers will be liable for these assessments meaning it is important to consider the key factors outlined by HMRC to determine whether a contractor operators ‘inside’ IR35 or ‘outside’ IR35.

 

Private sector and Public sector contractors have been impacted differently by IR35. From April 2020 private sector contractors will be subject to the same process as public sector contractors. Hirers will assess the status of a contractor to determine how their relationship most aligns with IR35 regulation. Factors such as in work practices and written contracts can be part of the assessment, so it is important for contractors to understand how they can demonstrate most accurately, their service.

 

IR35 excludes “small” businesses, meaning the contractor could still be responsible if their business falls in line with two or more the following;

  • – Annual turnover is no more than £10.2 million
  • – Balance sheet total is no more than £5.1 million
  • – No more than 50 employees.

In this case a contractor will be responsible for determining their own IR35 status and paying relevant taxes/dividends etc.

 

IR35 Key Aims

The changes to IR35 are important to HMRC as they aim to stop contractors from intentionally avoiding tax or attempting to pay reduced tax by changing employment status not job role. For example, an employee could stay within one company and maintain the same responsibilities, whilst officially leaving as an employee on a Friday and returning as a contractor on a Monday. Often this reduces the amount of tax payable by the contractor, whilst they sustain the same job role and income. HMRC will use IR35 legislation to ensure contractors providing a service will pay broadly the same tax and national insurance contributions as an employee would.

 

Outside IR35

If a contractor is identified by a hirer as outside IR35 they are deemed to be operating a genuine business. Contractors outside IR35 are responsible for paying their own salaries and tax payments. Even if a hirer has declared a contractor outside IR35, HMRC can still investigate a contract. Although the hirer is responsible for the assessment, it is important for contractors to produces relevant evidence and ensures they agree with the outcome. It is the legal requirement for a hirer to provide evidence of assessment to a contractor when requested.

 

Inside IR35

If a contractor falls inside IR35 they are subject to PAYE and considered an employee for tax purposes. Recruitment agencies or umbrella companies can act as an employer by paying through their payroll, deducting tax and NICs. To ensure the required tax is paid, a contractor may be required to make a deemed payment of income tax at the end of the tax year. If HMRC determine a contractor inside IR35 who has been operating outside IR35, the contractor (or hirer in the case where unreasonable care has been placed), will be responsible for paying income tax, interest, NICs and penalties payable during the accounting period in question.

 

Who is Responsible?

Compared to the responsibility previously being held in the main by the contractor, the changes in 2020 will require hirers to conduct assessments before engaging with contractors. Hirers will be responsible for determining whether a contractor falls inside or outside IR35. A hirer may become liable for tax that should have been paid during an accounting period by a contractor, if the hirers cannot demonstrate ‘reasonable care’ within the assessment.

 

What constitutes reasonable care?

To assess a contractor the following indicators can be reviewed. It is important for a hirer to use a demonstrable level of care when assessing contractors to avoid financial liability. There are no direct requirements laid out by HMRC to outline reasonable care. Reasonable care can be demonstrated by conducting case by case assessments opposed to blanket determinations that do not accommodate for individual circumstances.

 

Key Indicators for Hirers

Although ‘reasonable care’ has not been elaborated on by HMRC, there are key indicators that hirers can use in making their determination, based on learning curves of the public sector. These indicators can be displayed in working practice as well as written contracts between contractors and hirers.

 

3 Core Factors: Supervision – Substitution – Mutuality of Obligation

Supervision and Control should remain largely with the contractor if operating outside IR35. As a contractor has been instructed for their service, they should maintain autonomous control of the process. For example, working times, schedules or working locations. If a hirer is involved in this area of service, HMRC could deem the employment relationship inside IR35.

Right of Substitution enables contractors to substitute themselves with another worker or instruct help from other workers. This should be possible when operating outside IR35, as it demonstrates that the contractor has been instructed based on their skills/qualifications not based on them personally. This clause is not at the cost of the hirer, as reasonable grounds will allow them to veto substitution.

Mutuality of Obligation affects both parties. When a contractor operates outside IR35 they hold no obligation to accept ongoing jobs from hirers.

Other Indicators

Financial Risk is considered a key indicator of contract work outside of IR35. Contractors payments are often subject to the delivery of their service, unlike employees who are unlikely to receive a negative impact to their salary, based on poor performance. Contractors often receive payment when a service is complete or at key milestones of a project. If a worker is receiving a regular or guaranteed income they are likely to be inside IR35.

Provision of Equipment such as resources, training and insurances provided by the hirer could be considered as indicators of employment (operating within IR35). Contractors providing their own equipment, training and insurances is likely to constitute as business outside IR35.

Employee Benefits commonly associated with employment such as holiday pay, sick pay and pension contribution can all be considered indicators of an employment relationship inside IR35.

So you messed up. So what?

In the age of bluster, having the courage to own your mistakes can be a positive strength, say Matt Hunt, Juliet Taylor and Matt Stevenson-Dodd.

We got cocky, we thought anything we did would work’. Last month on Channel 4, celebrity chef Jamie Oliver was filmed breaking down in tears about how his restaurant business had failed, and admitting the mistakes he’d made. For someone so clearly committed to driving social change, and remaining in the media spotlight, wouldn’t this confession be damaging? Not according to psychologist Guy Winch in his 2018 article in Psychology Today1: ‘Some people have such a fragile ego, such brittle self-esteem, such a weak “psychological constitution”, that admitting they made a mistake or that they were wrong is fundamentally too threatening for their egos to tolerate.’ By contrast, ‘It takes a certain amount of emotional strength and courage to deal with that reality and own up to our mistakes.’

In an age dominated by blustering ‘strong man’ politics both sides of the pond, a frank admission of fallibility could be decidedly refreshing. And those who ‘fess up to failure are in distinguished company.

Many of our most iconic success stories exemplify how we can ‘fail forwards toward success’, to quote CS Lewis. Just look at Steve Jobs (fired by Apple), Michael Jordan (cut from his high school basketball team) or James Dyson (5,126 failed prototypes and all of his savings spent before inventing the bag- less vacuum cleaner).

At a corporate level, Silicon Valley tech businesses have long espoused the ‘fail fast’ model of prototyping ideas, testing lots of quickly developed ideas in the live market to see what actually works – as opposed to believing what people might do, so often the currency of market research. Testing first to see what fails, culling it and then rapidly promoting what works seems like common sense – but this approach is only just gaining traction in advertising and communications, which have long favoured a subjective and inflexible reliance on one ‘big idea.’

In the world of social change, where the problems faced by society are extremely complex, and traditional solutions are not reaching those in the most complex circumstances, we need to be brave enough to take risks and try new ideas, work in partnership and share transparently what we learn. Taking risks means we won’t always get things right and that is ok. The learning that comes from failure is often much more valuable for working out new solutions than success. And if those trying to effect social change are open about their failures, it makes the successes they are reporting that much more plausible.

This holds true when it comes to attracting financial support. If you can show what you’ve tried to do but failed, and so indicate where the need is – and where the solution is bigger than one person or one organisation – it can help drive home the case for support. Often the fact that something has failed makes the next iteration of the solution that bit more likely to succeed.

It takes nerves to swim against the tide. But the evidence suggests that far from being seen as a human weakness or a commercial threat, a readiness to admit to failure may yet prove to be your biggest strength.

Humility and authenticity are in fact great leadership qualities. Why then, for many leaders, does a nervousness to share what they have learned from their mistakes remain? As Ellen DeGeneres wisely said, ‘It’s failure that gives you the proper perspective on success’.

We are three organisations who each want our work to contribute to a better society. We share a common belief that social change is everyone’s responsibility and bring different perspectives and expertise to the table.

Our collaboration is based on a belief in co-production and that, together, we will always achieve more.

Trust and Transparency

In 2019, society faces vast problems: poverty, environmental destruction, people feeling disenfranchised. Such complex issues cannot be solved by one sector acting alone, or by using the simplistic ‘cause and effect’ paradigms of old.

At the same time, in our digital age, organisations and leaders have greater professional and personal exposure. The days of automatic trust are long gone. Clearly, a new approach is needed – and a new kind of leadership, based on transparency and trust.

We need individuals who will understand the interconnected nature of the issues we are dealing with, try new ways of working together to tackle them, and learn whether their approach works in real time, through world class monitoring and evaluation. They will know when they are successful but also be open when they are not successful – sharing their findings and learning together.

This more collaborative, open style certainly challenges the accepted view of how the social sector should operate. Moves towards greater commercialisation and payment by results over the past 20 years have driven a style of management that is not always transparent – and may, in fact, be less likely to stimulate partnerships. The challenge is to change that in an age where trust will be ever more important, especially for millennials and Gen Z.

The good news is that the face of leadership has already started changing. Even five years ago, recruiters were still seeking leaders with ‘functional’ experience – experienced in management, good with numbers, unlikely to frighten the Board. But today – with increased competition, less stability and more movement between sectors – the old skillset is too rigid. Instead, we actively seek leaders who are agile, creative and externally-focused.

In 2019, the people who are most effective in driving positive social outcomes not only lead and inspire their own organisations, they also look outwards to catalyse change.They influence other organisations, and even sectors, and encourage action based on shared vision. They are flexible, adept at forming partnerships and comfortable with ambiguity.

These leaders also communicate more authentically. They are unafraid to show humility. This means that the way they report on performance may be different – based on a higher degree of openness about failures, and on new, even experimental measures of success.

In a world where the future is unknowable, transformation depends on the ability to continuously experiment and adapt. Leadership that relies on fixed outcomes, or a rigid plan, simply won’t deliver.

If you embrace the risk, things will go wrong. But transparency is also the only way to win lasting trust – and with it, the funds you need to change the world.

We are three organisations who each want our work to contribute to a better society. We share a common belief that social change is everyone’s responsibility and bring different perspectives and expertise to the table. Our collaboration is based on a belief in co-production and that, together, we will always achieve more.

What does an era of scrutiny and ready criticism mean for leadership?

This is an unprecedented moment in time, where the old rules no longer apply. We live in an age characterised by an urgent need to solve the complex economic, social and environmental issues that face our society. With an apparently increased breakdown of trust in senior public figures, the media is full of stories suggestive of social unease and disenfranchisement.

Yet a strong and active spirit of social justice remains within communities and the organisations serving them locally, regionally and nationally. This determination may come from deep within those communities themselves, in isolation or in collaboration with others. There is no shortage of appetite to get involved; we see far more people who work outside of public and third sector organisations worried about the future and actively seeking opportunities to play a role in social change. If it hasn’t been before, social change is now everyone’s responsibility.

For people who take on leadership roles in pursuit of this, there is a constant stream of challenge and opportunity to navigate. Leaders are increasingly exposed, and often find themselves under relentless scrutiny by the public. We live in a society influenced by a potent mix of rising expectation and, at the same time, increased accessibility via social media. Both the public and media demand answers with virtually no time to prepare. While scrutiny is a force for good, the wrong kind of scrutiny can mean these roles come at a personal cost.

None of this deters those who are motivated by making a difference. How are these leaders staying ahead of the game? The old heroic model of leadership is no longer fit for purpose. Contemporary leaders need to go beyond embracing ambiguity; they need to be disruptive to instigate change and for their organisations to flourish. They expect the unexpected and their resilience to cope with chaos often stems from their honesty and deep commitment to the cause. They are equipped to respond to challenge calmly and often do so with humility.

Contemporary leaders need to go beyond embracing ambiguity; they need to be disruptive to instigate change and for their organisations to flourish

Finding the right person for the job means recognising emerging leadership characteristics and behaviours such as:

  • Acting as facilitator and alliance builder. No single sector can solve such complicated and entrenched social issues alone. These are system issues that need a system response. Great leaders galvanise and inspire others to join them in solving the problem.
  • Working in co-creation. Leaders who want to achieve social change realise there is much more to gain by earning trust and shaping the agenda with the communities they serve. There is no ivory tower here.
  • Being calm in a crisis. They know that the values of their organisation and commitment to positive outcomes is authentic and they have been transparent about their business.
  • Using insight and capacity for self-challenge. They rely on their emotional intelligence to anticipate and understand their impact on others.
The demands of leadership roles will continue to evolve: what we value in 2019 may be very different in five years’ time, and certainly will be in ten. There is a responsibility for us all to prepare the leaders we will need in the future. As sector boundaries become more blurred, with a wider range of organisations involved in delivering social change, do we need to think even more laterally about where those leaders will come from?

Five ways to attract, retain, motivate and develop Millennial Leaders

Starfish Search welcomes contributions from partners and other organisations.

Millennials are the leaders and workers of today and by 2020 they will make up the majority of the global workforce. In this article the author Simon Barrington outlines for Starfish Search the attributes of this generation of leaders and what that means for future leadership in the social sector and beyond.

Millennials have been stereotyped, and stereotyped and stereotyped again – narcissistic, entitled, disloyal, disrespectful – the list goes on. You can read article after article about what is wrong with them, how difficult they are to manage and how quickly they jump ship.

The reality is that millennials are now reaching the age where they are leading and creating their own cultures. They are the leaders and workers of today and by 2020 will make up the majority of the global workforce.

So, how can you attract, retain, motivate and develop millennials? Based on unique, first-of-its-kind research into millennial leaders, Simon Barrington, Founder and Director of Forge Leadership who undertook the research, highlights five ways in which you can get ahead of the curve and reduce the guesswork involved in bringing millennials on board, and keeping them on the team.

Starfish Search launches Interim Talent Practice

Starfish Search is delighted to welcome Catherine Kift as Director and Head of Interim Talent to the team. She brings 14 years’ experience in the field of leadership recruitment with particular expertise in engaging talented senior interim appointees. Catherine has worked across a very broad range of sectors and disciplines at board level and brings a strong focus on long term client and candidate alliances.

“I am thrilled to join Starfish, a new start up with purpose and sustainability. We know that there are many senior skilled individuals who want to bring their social conscience to work and our job is to make that happen in a way that benefits our clients. I am excited to join a team that is already bringing a fresh approach to its client base and is strengthening the connection between recruitment and social change.”

Starfish Search works across all sectors at Board level to make strong, lasting and influential appointments. If you are interested in engaging with or joining Starfish please contact Catherine.Kift@starfishsearch.com

Practice-based learning for leaders

We really like the New Chief Executive’s Programme, held by the Centre for Charity Effectiveness. It offers a high-quality learning experience that empowers new chief executives to lead with confidence.

This highly participative programme has been designed to provide in-depth professional development opportunities at a pace to suit busy chief executives. The programme is divided into three parts: two intensive two-day modules, and a follow-up one-day module to further embed the learning. There are evening units and social events, with options for preparatory reading and inter-module activities. You also receive 360-degree feedback using the recognised Outstanding Leadership competencies, and an individual coaching session to support you to interpret your profile. The programme provides a comprehensive foundation in the range of skills, knowledge and behaviours required for the demanding role of chief executive, along with greater self-awareness – making use of expert presentations and robust supporting materials. By weaving in your personal case studies, peer coaching, and genuine workplace issues, the programme is current and relevant, and grounded in the practical realities of the chief executive’s role. The emphasis on self-reflection, action learning, and continuing professional development, ensures sustainable learning well beyond the life of the programme.