IR35 – Is now the time to go it alone?
With the roll out for IR35 in the Private Sector confirmed, End-Hirers are now considering the approach to take when assessing their off-payroll workers and whether they can manage the entire IR35 Project themselves.
Many End-Hirers have already been through the arduous task of assessing the IR35 status of off-payroll workers ahead of the original April 2020 roll out date; but will those determinations still stand? In theory yes, they will. Providing that nothing has changed. However, making this assumption could mean that you fall the wrong side of the ‘Reasonable Care’ requirements that HMRC say End-Hirers must demonstrate on an ongoing basis.
IR35 Refresher Reviews
We have seen a rapid change to day to day working practices, for both employees and contractors over the last few months, in response to the COVID-19 pandemic. This alone may mean that current SDS’s are not accurate and up to date. Further, we tend to see that over time working practices change and become more relaxed (which can have an impact on IR35 Status) but as changes over time aren’t as drastic as the changes we have seen in recent months, they often go unnoticed. Furthermore, it is common for the person responsible for managing the ‘IR35 Project’ to have other duties and responsibilities. This means that they are unable to devote as much time to the IR35 assessment process, as required.
It is easy to fall into the trap of telling yourself that ‘nothing has changed’, therefore it is prudent to engage specialists to undertake a refresher IR35 sample audit. Your specialist advisor will be able to identify any subtle differences in working practices which will ensure that you have in place up-to-date and accurate SDS’s; and ensure that you are continuing to meet your ‘Reasonable Care’ requirements.
Not only will having an IR35 expert that you can call upon at any time help to ensure that your SDS’s are accurate; but will also enable you to make adjustments to contracts and working practices allowing more determinations to be categorised as Outside IR35.
Unless you have an IR35 specialist in-house whose responsibility it is to ensure full compliance with this constantly evolving area of employment tax law, we would suggest that now is not the time to go it alone.
HMRC define Reasonable Care as acting in a way that would be expected of a prudent and reasonable person in the same position. Whilst each End-Hirer has a responsibility to take reasonable care, what is necessary for each End-Hirer to discharge that responsibility must be viewed considering their abilities, experience and circumstances.
If the End-Hirer fails to take reasonable care, the responsibility for the deduction of tax, NICs, apprenticeship levy and paying these to HMRC will rest with them.
Furthermore, HMRC goes on to state that ways of continuing to demonstrate ‘Reasonable Care’ are:
- If there are any material changes to a worker’s terms and conditions or working practices, then a new status determination is required;
- Checking existing SDS’s to ensure they remain accurate and valid;
- Reviewing the processes being applied and amending for future determinations where necessary; and
- Seeking the advice of a qualified, professional advisor.
- It is clear that doing nothing and presuming previous determinations are still accurate and valid may not suffice and potentially still expose End-Hirers to tax liabilities.
The Cost of Getting IR35 Wrong
If you get a determination wrong HMRC will demand the NIC’s that have not been deducted together with potentially a hefty penalty and interest for late payment. This means the cost of getting it wrong is substantial. To put this into context, the minimum you could expect to be liable for, in respect of Employer’s NIC’s alone for a contractor paid an hourly rate of £40 per hour on a full time 12 month engagement is around £10k. Multiply this number by how many contractors you engage and you could be looking at a sizeable amount even before penalties (which could amount to 100% of unpaid taxes) and interest are taken into consideration, whereas you can obtain help and assistance in getting IR35 right, for a fraction of that potential liability.
- Remember that your IR35 responsibilities do not end in April 2021 – this is just the beginning;
- Reassess contractors every 6-12 months, in order to ensure that SDS’s remain up to date and accurate;
- Do this by having people solely focussed on the task in hand, or engage IR35 specialist; and
- Do not fall into the trap of ‘scraping the surface’ and telling yourself ‘Nothing has changed’ as we often see, this is not the case.
Where Brookson Legal have previously been engaged to undertake an IR35 Audit for you, a completely new audit is unlikely to be required. We would suggest undertaking a sample refresher review of 10 – 20% of previous determinations and reviewing any new roles, or those that you know have changed.
If you would like more information on how Brookson Legal can assist you or more information on our NEW IR35 Portal please feel free to email us on [email protected].