Since April 2021 the IR35 reforms created a range of risks for organisations, however well organised and prepared companies can provide an edge and competitive advantage.
The potential risks to businesses might include fines on top of contractors pay, loss of resource leading to delays on projects, potential HMRC investigation, not to mention the reputational damage.
As a business, focus on
- Awareness: Use IR35 to finally understand the full composition of your workforce, including spend
- Change: Treat IR35 as a catalyst to implement a market-leading contingent workforce solution
- Attract: Create a competitive advantage by making yourself a magnet for off-payroll talent
- Retain: Secure vital existing off-payroll workers or even migrate them to your permanent workforce
If an HMRC investigation finds that a placement has been incorrectly determined outside rather than inside, clients could be liable for charges of more than 50% of the amount paid to each contractor.
The charges for this deemed as careless or intentional mean that likely the charges will be backdated, for a maximum of four years, from 6th April 2021.
While IR35 can present challenges for some businesses, a full review will help you achieve full visibility of your contractor workforce, which will benefit the company is many ways.
- Streamline and improve operational processes.
- Opportunity to save on costs.
- Improve and ensure compliance.
- Improve deliverables and enhance flexibilities.
The end client is to determine the IR35 status, there are tools available online to help you.
CEST – the Check Employment Status for Tax will help you determine whether an assignment is inside or outside IR35. gov.uk/guidance/check-employment-status-for-tax. However, while this tool is useful, it is also simplistic, and does not cover all arrangements. We often find that employers use CEST and despite its genuine application, achieve determinations that we consider would not be the outcome in law because the facts are more complex than CEST can analyse.
If HMRC disagrees with a decision regarding whether a service is fully contracted out and considers the business to be the client for IR35 purposes, the responsibility for deducting and accounting for tax will pass back up the chain from the fee payer to the client. Therefore, if a client is incorrectly identified, there is risk for the true client to receive unexpected tax liabilities and investigation.
In July 2021 the Home Office was hit with a £33.5m bill over careless application of IR35 rules, £29.5m in lost tax revenue and £4m in penalties.
Certainty is what a business needs to succeed. Once you have reviewed your working practices and decided to make any changes to how contractors are managed, you may wish to prepare a policy, or policies, setting out how contractors should be managed and ensure that your contractor management procedures and practices reflect these changes.
It may also be important to train your those of your staff who have responsibility for managing contractors to ensure that the changes are implemented consistently across your business and to help you demonstrate to HMRC that your practices reflect your policies/procedures should you receive an IR35 compliance audit.