Top 5 things contractors can take away from the IR35 consultation
The recent IR35 consultation issued by HMRC has reaffirmed that the Off-Payroll rules, in force in the Public Sector, will soon be extended to the Private Sector. We have therefore identified some key points that contractors should be aware of:
1) The changes are happening
Many contractors expressed concern with the upcoming changes and urged HMRC to re-consider rolling out the changes seen in the Public Sector in 2017. The Consultation confirmed that the changes would be going ahead, and the changes seen in the Public Sector would form the basis for the changes, when rolled out to the Private Sector. The Consultation has provided further insight into how the changes will differ, when rolled out into the Private Sector and such differences include a requirement for clients to incorporate a challenge process for contractors, within their IR35 Assessment Process.
2) You may still need to assess your IR35 status
Currently, in the Private Sector, Contractors are responsible for assessing their own employment status. The effect of the changes is that your client will become responsible for determining whether the role you are fulfilling is either inside or outside of IR35. There is, however, an exception to these changes in that small organisations will not be required to determine the status of off-payroll workers and in such instances the risk and exposure will remain with the contractor. It is understood that the definition of small company used in the companies act 2006 will be used to determine a small organisation for the purposes of IR35 in the Private Sector, but this is yet to be confirmed.
When the Public Sector changes were introduced back in April 2017, there was no requirement for the Public Sector Body to provide any information on how they had reached a specific outcome in respect of a role. This was met with frustration as contractors had to accept the decision of the Public Sector Body or no longer continue to provide the services. In many cases, the contractors were completely unaware as to why they were deemed within IR35. Thankfully, the recent IR35 consultation proposes a requirement to pass the determination and reasons for the determination upon request down the labour supply chain. The requirement for clients to be transparent in how it came to reach as decision on a contractors IR35 Status should provide some comfort that most clients will not adopt a blanket approach and allow contractors to mount a challenge when the believe that client has not considered the full circumstances.
4) Challenging your status
Many contractors and people against the IR35 reforms have expressed concern that companies may decide to make blanket assessments as they are not equipped to deal with their new obligations. A client choosing to operate in such a manner does so at the risk of losing highly skilled workers and no longer being able to attract contractors who are subject matter experts. Furthermore, it is not within the rules to make blanket assessments. HMRC are to put more emphasis on the reasonable care requirements of clients and it is clear that categorising a whole population of contractors within IR35 without considering the contract and working practices in detail, will not amount to reasonable care. The consultation suggests that clients should have in place a disagreement process allowing contractors to contest the IR35 status of a role. This will entail at a minimum, the client considering evidence put forward by a worker. We hope that this will mean that contractors are treated fairer than they were when the IR35 Public Sector changes were introduced and keep blanket assessment and incorrect rulings to a minimum.
5) Improvements to CEST
HMRC’s Check Employment Status for Tax tool, CEST for short, was developed to help public sector bodies when the IR35 changes were rolled out into the public sector. The intention was to provide a user-friendly tool which would provide a clear and categoric answer to a contractors IR35 Status. Needless to say, the tool has proved controversial at best and unfit for purpose at worst.
The consultation acknowledged that CEST requires improvement and HMRC have pledged to improve the tool, whether this can be achieved remains to be seen. Despite the criticism, this hasn’t stopped HMRC plugging its tool as we have recently seen HMRC writing to contractors asking them to check their status via CEST within the next 30 days. The worrying thing is, given its flaws, it is difficult to see how undergoing an assessment via CEST would constitute reasonable care.
HMRC’s own recent high-profile losses prove how complex it is to assess IR35 status and as such many are dubious as to whether a tool can output a result without fully assessing the often intricate and nuanced case law that decides employment status.
If you are a contractor, end hirer or a recruiter and think you need further advise on the IR35 legislation change please do not hesitate to get in touch.