IR35, also known as “off-payroll working” rules, was introduced to help HMRC tackle tax avoidance through off-payroll working. In April 2021, the off-payroll working private sector changes ‘ripped up the rulebook’ when it came to determinining IR35 status and who faces tax liability. The changes created two entities for HMRC to target: end clients and fee payers. If you engage with PSCs (or Limited Company Contractors) this relates to you.
A key date to bear in mind: 6 April 2022 marks the end of HRMC’s ’light-touch’ approach to these new rules in the private sector, meaning that businesses working with contractors where the end client cannot demonstrate that they have taken ‘reasonable care’ in their IR35 decision-making could be facing penalties on top of any tax bill.
The reasonable care requirements are set out within in HMRC’s Employment Status Manual.
What is does it mean to ‘take reasonable care’?
Under the new regulations, HMRC is in essence placing a spotlight on the processes and systems which end client engagers have put in place to determine the status of each and every engagement with a limited company contractor.
In practical terms, end clients and recruiters must ensure:
- contracts, schedules and statements of work of the entire chain are aligned
- client policies do not impact upon the candidate’s independence; and, above all that
- contractual terms and working practices support each other.
Be wary of using online assessment tools in isolation
For many, the initial prospect of online assessment tools appeared to be a sufficient method of dealing with the changes. However, reflecting on the fines paid by the Department for Work and Pensions, Home Office and other public sector bodies which used HMRC’s Check of Employment Status for Tax (CEST) tool, simply utilising these tools in isolation is not sufficient to demonstrate ‘reasonable care’.
Embrace a holistic approach
Not every end client has in-house IR35 expertise, so ‘seeking the advice of a professional adviser’ is deemed reasonable; and as long as the client ‘checks and reviews processes where it subcontracts the determination process to another party’, this is also an acceptable way to approach matters.
The evidence suggests that a more holistic approach is needed: specialist consultancy to ensure contractual terms are fit for purpose; a robust system for determining working practices; and a protection net for if/when HMRC challenge, including tax liability cover, if HMRC are successful.
The specialist recruitment team at Partners& is working in collaboration with strategic partner Markel Tax to provide a solution that complements our existing recruitment insurance portfolio and supports recruitment businesses to adapt to the new regulations.
Not only will Markel Tax ensure contracts are fit for purpose, clients will also have access to a newly developed compliance assessment platform with three key benefits
- Ease of operation
- Clear outcomes
- The ability to deal with volume assessments
More than that, the solution is supported by specialist IR35 consultants from a team that has been involved with this legislation since 2000 and has had more IR35 tribunal victories than any other consultancy, including winning the first case in 2002.
Benefits of a 360° solution to recruiters
If clients can demonstrate reasonable care, the liability could be yours. That’s where the due diligence pays dividends: contracts are compliant; working practices have been properly assessed; and when you insure the liability, you have a specialist team to defend your position and cover which pays the liability. By creating a solution that focuses on building resilience into a business, we can help agencies to mitigate risk, demonstrate “reasonable care” and achieve a more attractive proposition, enabling them to attract and retain the best contractor talent.