It’s now almost 12 months since the IR35 Off-Payroll Reforms were due to take effect.
Many businesses had invested time and money into preparations for the 6th April 2020 with collaborations, new systems and updated procedures only for the legislation to be deferred due to the pandemic.
With the reforms now in play, what should businesses be doing, and what should business as usual look like?
IR35 – Prepared and ready?
With the IR35 reforms now in effect, businesses still preparing can take some solace in HMRC’s announcement about a “light touch” introduction. Whilst it is imperative that businesses take action, genuine mistakes will go unpunished for the first 12 months following the introduction.
In a previous article, IR35 — deferred, not defunct! Workr Group outlined the changes in responsibilities for engagers and recommendations on what HMRC expects from engagers concerning processes and responsibilities. Now that the reforms are in effect, engagers should be doing the following:
Status Determination Statement (SDS)
The IR35 changes state that the engager must make a status determination and take reasonable care in doing so. The status determination is required to ensure that the correct taxes and deductions can be calculated and made in accordance with the legislation.
According to HMRC’s Employment Status Manual (ESM10013), a valid Status Determination Statement must:-
- state in the SDS whether or not the worker would be an employee or office holder, or is an office holder, for tax and NICs purposes if they were directly engaged by the client,
- provide their reasons for coming to that conclusion, and
- have taken reasonable care in coming to their conclusion (see ESM10014)
It is essential for engagers to note HMRC’s stance regarding reasonable care as follows:-
“If the client fails to take reasonable care, the responsibility for the deduction of tax and NICs, and the payment of the apprenticeship levy and paying these to HMRC will rest with it. That liability will always remain with the client unless it takes reasonable care in reaching its conclusion set out in the SDS.”
By reasonable care, HMRC means that the status determination must be thorough and detailed, giving an accurate and clear representation of the work to be carried out by the contractor (worker).
HMRC recommends that you formalise and record a consistent process, seek professional advice and assistance, involve relevant parties or individuals, use a determination test tool and define and communicate a transparent process for challenges.
Determination test tools
HMRC released its Check Employment Status for Tax (CEST) tool some time ago, but this has proved inconclusive for many assessments, even in some of HMRC’s own test cases.
However, suppliers in the industry have constructed several other tests using case law examples, representing credible CEST alternatives.
Many engagers who want to continue to utilise contractors have stipulated a need for IR35 insurance within the supply chain.
A comprehensive insurance policy that supports a robust determination process should eliminate almost all liability from engagers and put them in a prime position to attract the best contractor talent for those assignments identified as outside of the legislation.
Contractors and agency suppliers must have the opportunity to challenge an assessment, whether inside or outside of IR35.
Failure to consider or respond to an SDS challenge will likely be regarded as a lack of reasonable care by HMRC. This would significantly increase the risk of liability should HMRC find an assessment to be incorrect.
6th of April 2021 and beyond – Business As Usual (BAU)
Businesses should not underestimate the benefits of having a defined, robust and documented process for IR35 assessment.
Engagers prepared to invest in some simple processes and procedures, along with the support of compliant suppliers, can quickly and easily mitigate the risks posed by the new legislation and meet HMRC’s requirements.
As with any other supply chain for products or services, some good due diligence and common sense will allow businesses to carry on with business as usual, utilising contractors effectively and productively.
In contrast to businesses that have changed policies or made blanket statements, engagers will benefit most from the choice of exceptional contract talent available to them due to their fair and credible approach to IR35.
IR35 – Act now!
We encourage anyone with a responsibility for IR35 compliance to ensure that your determination process is fit for purpose and meets HMRC’s reasonable care requirements. To learn more about this you can join Workr Compliance and STR Group at 4pm on Wednesday, 5th May for a webinar reviewing the landscape post 6th April and to gain key advice for maintaining BAU in the months ahead.
If you are unable to make the webinar our specialist team can provide impartial advice and support to help you meet your reasonable care responsibilities. For a free, no-obligation audit and assessment of your IR35 compliance process, you can speak directly with Andy Webster on 07827 810851 or at firstname.lastname@example.org.
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