Since April 6th, hirers and contractors have been working in the “new normal” of Off-Payroll working. For hirers, adopting a compliance-led approach and continuously monitoring and assessing the contingent workforce is the only way for firms to ensure they are best placed to choose from the front of the talent queue and access the best contracting talent they need. Dave Chaplin is CEO of IR35 Shield, and he urges hirers and contractors to work together to ensure they can continue to safely hire genuinely ‘outside-IR35’ by carrying out this five-point plan:
- Assess IR35 status comprehensively
- Ensure the contractual terms align with the relationship
- Agree and sign a Status Determination Statement (SDS)
- Make sure the engagement operates in alignment with the original intent
- Monitor and collate supporting evidence throughout the contract
Remember, HMRC cannot override the law on a whim by forming an opinion that the status determination was incorrect without facts to support that opinion. They can only apply the existing law and seek to enforce a contrary view in court using solicited facts. If the parties evidenced facts clearly point to a position of ‘outside IR35’ then HMRC will have no evidence on which to base an alternative view.
Assess IR35 status comprehensively
Since the new tax rules came into effect, firms might find that a number of individuals who made up their contracting workforce upped and left, and those that stayed and agreed to work “on-payroll” will certainly be looking to move on to an ‘outside IR35’ engagement. Rate inflation for some firms who blanket banned in-demand skills will also have been an issue.
Some projects may have also come to a grinding halt, just like when the legislation took effect in the public sector in 2017. Therefore, firms should now establish the impact on their projects and genuine status of contingent workers so that their businesses can regear for the new normal.
Firms who ran blanket bans or did not treat contractors fairly will find themselves at the back of the queue and will have to work harder to attract talent, or simply pay more for the same level of expertise.
Adopting a quality Off-Payroll compliance solution is crucial. This helps identify engagements that are caught within the legislation and can also inform the practicalities of redesigning engagement strategies and working conditions to engage workers on a genuinely self-employed (‘outside IR35’) basis.
Using the adopted compliance solution, hirers should assess their contractors based on the contract and the working conditions. The result will be key in informing the next steps, and help answer questions such as:
- Which contractors could be hired on an ‘outside’ IR35 basis?
- Which roles are more likely to be akin to employment, where on-payroll is required?
Ensure the contractual terms align
Having sought answers to the important questions, hirers will be ready to establish a long- term plan. They might find that certain policy changes to contractor working practices are enough to mitigate IR35 risk effectively, enabling some contractors to operate ‘outside IR35’.
Of course, any changes made must be realistic, rigorously applied in practice and reflected in newly drafted contracts. Any contractual amendments that are simply window dressing and not part of the true agreement between the parties are unlikely to provide much of a defence should things proceed to a tax tribunal.
Agree and sign a Status Determination Statement
Upon assessing a contractor’s IR35 status prior to beginning a contract, the hiring organisation is required to provide the contractor with a Status Determination Statement (SDS). This is a comprehensive statement which fulfils two primary purposes:
- Declares the contractor’s deemed employment status
- Details the reasons for the hiring firm having reached its conclusion
A sufficient SDS details the information provided concerning the engagement, the conclusion, and the reasoning for this conclusion following the consideration of the information provided.
Where a contractor engages directly with a company, the company should present the SDS to the contractor. If there is an agency in the supply chain, the SDS must be passed down via the agency, as well as directly to the contractor. Similarly, more than one agency in the supply chain means the SDS must be passed down via each intermediary so that each is informed of the status determination and their subsequent responsibilities.
Make sure the engagement operates in alignment with the original intent
The contractual paperwork must align to the reality of the engagement. Lazily drawn up boilerplate contracts that have not been sanity checked by IR35 legal experts are a recipe for disaster at subsequent investigations and tribunals.
For those firms planning to hire contractors on an ‘outside IR35’ basis, they must be sure to get the contracts checked by experts in the field. Bear in mind that HMRC takes 3-5 years to train their own status inspectors, and even they may struggle with cases.
Whilst self-proclaimed “IR35 experts” will continue to pop up in the UK over the coming months, the reality is that there is a very limited pool of professionals who have enough detailed knowledge of the subject. Their experience gained over the last two decades puts them in a position to understand exactly how contracts are picked apart by HMRC lawyers and barristers at tribunal. A solid defence starts by considering what could happen in 4 to 6 years’ time, and then working backwards to shore up the defence.
Monitor and collate supporting evidence
Off-Payroll compliance is an ongoing process. Ongoing monitoring of the workforce is necessary to ensure that working practices always reflect the written agreements. Regular checks should be made to ensure that the engagement has not fallen ‘inside IR35’, and also to gather vital evidence that can be used to reinforce the original determination at a later date.
A compliance-led approach underpinned by a quality compliance solution is easier to apply than most realise and by adhering to the 5-point plan firms can continue to hire contractors with confidence.