Part 3 – An unqualified 3rd party completing your assessments
IR35 is a piece of legislation relating to employment status for tax purposes, if the person completing the assessment is suitably qualified (i.e. legally qualified) then the reviews are likely to pass reasonable care as HMRC state that seeking the advice of a qualified professional is sufficient.
The question you need to ask is are the persons responsible sufficiently qualified, you wouldn’t ask an unqualified person to give you legal advice pertaining to another legal issue of employment law.
What to consider when using a 3rd party provider
If the assessment is being completed using an online tool via a 3rd party (i.e. Recruitment business, insurance provider or your contractors) and the person inputting the information doesn’t fully understand IR35, the nuances of the legislation and the questions being asked then this is unlikely to pass reasonable care.
If you wish to outsource to a 3rd party, ensure that they are suitably qualified and have a minimum of 5 years of experience, so they can demonstrate their offering across the Public and Private sector changes.
HMRC have released Employment Status Manuals (ESM’s) to provide guidance on these subjects and HMRC ESM10014 relates specifically to reasonable care and states the following in asking a 3rd party to complete this integral test:
- Ensuring it checks and reviews processes of other parties where it subcontracts the determination process to another party. The client remains responsible for the accuracy of the SDS even if it subcontracts that responsibility to another party.
- The client subcontracts the SDS process to another party and does not confirm the accuracy of that conclusion and the reasons for it.
Below we have highlighted some of the key risks that can occur when getting an unqualified 3rd party to complete the assessment when they are not suitably qualified:
Reasonable care risk
- It is the client’s responsibility as guided in the legislation and confirmed by HMRC.
- A contractual and working practices review is required and the person should be suitably qualified.
- The person completing the assessment should understand both the contractual element and the day to day working practices in detail.
- SDS being ‘signed off’ by an employee of the client that isn’t qualified to do so.
Reputational and insurance risk
- Tax loss insurance is unlikely to provide cover if incorrect information has been provided and contract and working practices are not reviewed together.
- Standard recruitment agency PI cover is unlikely to provide cover for providing employment status and legal advice.
- If a client is deemed to have not taken reasonable care by outsourcing the SDS then they will be the ‘deemed employer’ and liable for all fines and penalties.
MSC risk for agencies completing the assessments
- MSC Rules were introduced in 2007 but there is an agency exemption for recruitment purposes.
- Providing IR35 advice or completing employment status reviews will fall outside the agency exemption.
- The agency could be seen to be controlling the provision of services and benefiting financially from these services.
- The agency is seen to be promoting an undertaking to make good any tax loss by promoting tax loss insurance.
- The agency, client and their directors can be personally liable under MSC regulations.
IR35 is a piece of legislation that affects the flexible supply chain and by engaging with a specialist they can ensure you are adhering to these rules, taking short cuts or looking for a quick solution may put your whole supply chain at risk from these different pieces of legislation.
If you are still unsure of the best way to go about your IR35 reviews and want to ensure you use a qualified partner, contact Brookson legal to find out how we can help.