What IR35 ready payroll software looks like

18th Feb 2021
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Get ready for April: IR35 rule changes in full-effect

It feels like it has dragged on for a long time, but the government’s much talked about changes to IR35 are finally kicking in from April 2021. These rules aren’t, of course, ‘new’. They’ve been in effect in the public sector for years. Indeed, IR35 has been in the pipeline since the turn of the Millenium. It’s simply that it’s only just trickled through to the private sector. April 2021 is simply the private sector catching up. So what’s changing for private sector companies. As you may know, businesses will have to determine whether a contractor falls inside or outside IR35.

So, the onus has been shifted onto the business to deduct the right tax and National Insurance contributions (NICs) and pay this directly to HMRC on behalf of the worker through RTI.

A small change with a big impact

If you employ contractors, you are now responsible for deciding whether the rules should apply and making sure they and their workers pay the right tax. Critics have said this outsources compliance work to businesses. In effect, these critics are right. But that’s little solace for the many businesses who now have to reorient the way they work contractors. The good news is that your only focus for these ‘off-payroll workers’ is tax and NICs. Off-payroll workers are not entitled to receive:

  • Statutory payments: Statutory sick pay, statutory maternity pay, statutory adoption pay, statutory paternity pay, shared parental pay or statutory bereavement leave
  • National Minimum Wage/ National Living Wage rates
  • Annual leave entitlement / holiday pay
  • Student Loans or Postgraduate Loans
  • Automatic enrolment pension scheme contributions

This substantially decreases the complexity of what a business needs to do. The potential financial penalties of getting it wrong, however, are significant.

A blanket approach isn’t compliant

There is a right way and a wrong way to comply with IR35 rules. Just putting all contractors ‘inside IR35’ and hoping for the best isn’t good enough. You can use HMRC’s online tool to assess whether that freelancer you're working with should be classified as an off-payroll worker. Your payroll software needs to be IR35 ready, too. 

BrightPay will be able to cater for workers who are inside IR35. Once an employee is set up in BrightPay as an off-payroll worker, some settings will be automatically disabled, including student loans, postgraduate loans, directorship, and annual leave entitlements.

Click here to discover how BrightPay caters for IR35.

What IR35 ready payroll software looks like

IR35 is, in a certain respect, relatively simple. If you employ contractors, you are now responsible for making sure they and their workers pay the right tax. That’s easy, right? Right…

Obviously, completely changing the way you engage and work with contractors is no easy task. But the right payroll software can make the learning curve a lot less steep. IR35 is, at its heart, a payroll issue. Of course, there are all sorts of software, all claiming to be the most adept at handling the intricacies of IR35. So how can you separate the wheat from the chaff?

What to look for IR35 ready payroll software

  • Set up a worker with one tick: When setting up a worker as an employee, you should be able to simply tick ‘off-payroll worker’ within software. This action should disable entitlements that do not apply to contractors who fall inside the off-payroll working rules.
  • Track off-payroll workers in payroll software: Once set-up as an off-payroll worker, you can easily monitor your off-payroll workers in one place.
  • Customisable: While some functions should be disabled in the software, you may wish to share your leave calendar with the contractor in the software. If you add statutory leave, the software should not let this filter through payroll while also opening up the leave calendar to the worker.

Simple, trackable, customisable and affordable

These are the four elements you should look for in any IR35 compliant payroll software. You have enough costs to contend with, don’t let IR35 become another drain on your finances. It doesn’t need to be a nightmare. While IR35 rules will absolutely require a degree of human judgement, software can speed up the work of compliance once you’ve made the right decision. Don’t get bogged down in managing IR35 – and don’t go one size fits all, either. There’s a happy middle ground when it comes to IR35. With BrightPay, you can manage the challenge with no additional cost and time investment.

Click here to discover how BrightPay caters for IR35.

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