Webinar: Discussing the IR35 changes and new obligations
On February 2nd, Brookson hosted a webinar with HMRC, getting the lowdown on IR35. Here’s a brief summary of some of the key discussion points.
Nine weeks to go
There’s just nine weeks until April 6th, when the new IR35 regulations will come into force. While they were postponed previously, this time they’ll definitely be going ahead, so it’s important that everyone who will be affected is ready.
The contractual chain
One of the most important things to understand once the new IR35 rules take hold is who is responsible for the Status Determination Statement (SDS). This must be completed by the client and then passed down the contractual chain and must be communicated to the worker and any third party involved with the client.
As the SDS is passed down the chain, the responsibility for tax and National Insurance contributions (NICs) stays with that party until it reaches the next qualifying person. The final destination of the SDS is the fee payer and could be a client or agency depending on who is the contractual chain.
There can be a number of these parties within a chain and it’s important to know who holds the responsibility for passing on the SDS and who will ultimately be the fee payer. This can be further complicated when elements such as off-shore agencies appear in the chain. These must be skipped over with the SDS being passed to the next qualifying person.
Labelling a contract as a contracted-out service doesn’t guarantee that IR35 won’t apply and the following factors should be considered:
- Nature of the business
- Nature of the service providers contract
- The relationship between the worker, the service provider and their customer
As an example, the clear business of a football ground is to host football games, but they may also want to provide catering services. To do this they will engage a catering company, which means that elements of that business will be contracted out.
For the football ground to not be deemed the employer, the catering company should decide on the specification for how they deliver the service, take on the risk for any losses and provide any equipment that may be needed. They can also make a bigger profit by running that contract in a certain way. This then makes the catering company the employer and not the football ground.
Recovery of debt provisions
Where the deemed employer has failed to account for tax and NICs, HMRC can recover the debt from agency one or the client in certain situations, however this will only be done as a result of genuine business failure on the part of the deemed employer.
When making an IR35 decision, the client must take ‘reasonable care’. This is not contingent on getting the decision right but being able to prove that prudent steps were taken when coming to the status decision will protect the client from repercussions.
Questions and answers
The webinar concluded with a number of questions, which had been submitted by participants.
How can you prove you took reasonable care?
- Show what processes were in place and the steps you took.
- Keep as many records as possible.
- Consult the HMRC website or seek advice to see what reasonable care looks like.
When IR35 comes into force, what will HMRC be focusing its resources on?
The details of compliance have not yet been fully decided and will be released over the next few months.
Is it risky for employers to ask contractors to determine their own status and pass it on?
Letting contractors determine their own status is not taking reasonable care, as it means accepting someone else’s conclusion. If this information is made available, it should be taken into consideration, but not accepted on its own.
If there is a disagreement on the decision, can it be outsourced?
The decision remains the client’s responsibility, even if the contractor does not agree. In reality, a third-party is likely to be engaged to help mediate the situation, but the client must ensure any outsourced decisions are accurate.
If a client is not given any more information but is asked for a decision again, they must keep reissuing the conclusion they’ve come to in order to meet their responsibilities.
Can you use the same SDS multiple times?
The same document can be used for multiple contracts if all the details are the same, but must be reissued each time and updated should things change.
When will debt recovery revert back to agency one or the client?
That will only happen when the deemed employer has become insolvent through a genuine business failure. HMRC will not accept phoenixism – when a company dissolves on purpose to shake its responsibilities – as a reason to look elsewhere for debt recovery.
It’s important that a party does its due diligence before working with another party, as if something goes wrong down the line, they could become liable.
What if an intermediary (PSC) is offshore?
Take it out of the equation. You can see an example of this on the HMRC website.
Does the small company exemption apply to organisations that are part of a group?
As per the Companies Act 2006, a small company is defined by the average number of employees over a year. If a small company is part of a big group, then it’s no longer a small company.
- You should already be taking steps to prepare for IR35 as it will come into effect in April.
- Think about where the responsibilities will lie within your team.
- Ensure you keep evidence in case it is called up.
- Test your processes in advance.