By Sophie Clayton
Are you an end client that’s confused by IR35 or unsure of what impact it will have on your business? You’re in the right place. We recently held a seminar for our clients, addressing the common myths and misconceptions of IR35 and the changes to the legislation.
This blog recaps everything that was discussed in the seminar, demonstrates the IR35 comply solution, and will provide you with the basics needed to get to grips with IR35.
What is IR35?
IR35 isn’t new – the legislation has been in place since 2000. But the rules are changing, and this will have a direct effect on end clients. Designed to identify ‘disguised employees’, IR35 will only impact contractors who are seen to be operating as an employee in the eyes of HMRC.
You may be wondering why you’re hearing so much about IR35 if it’s been around for nearly 20 years. That’s because, in April 2020, the responsibility for assessing the IR35 status of an assignment shifts from the contractor to the client. Following this date, there are a number of things an end client must do to comply with IR35, they include:
End client responsibilities:
• To determine IR35 status of assignments
• To pass the status determination statement (SDS) down the chain (fee payer and contractor)
• To take reasonable care in making decisions
• To make records of decisions to deal with HMRC enquiries
• To deal with appeals against the assessment within 45 days
• To ensure that those down the chain comply (to avoid liability passing)
Common IR35 myths: True or false?
Myth | True or False? |
|---|---|
An end client may be liable for IR35 costs even if they used reasonable care in reaching a status decision | True – the end client not only has to make the IR35 status decision, but also has to pass the ‘status determination statement (SDS)’ to the agency and PSC. If they fail to do so, they will be treated as the fee payer and therefore liable for any unpaid tax. There is also a proposal to allow for the collection of tax from a end client if the agency fails to make payment (e.g it is insolvent) |
If a client wrongly makes an inside assessment, the PSC can sue the client for losses | True – The PSC will have to prove that the client was negligent in their decision and that it resulted in loss of earnings. Although we haven’t seen a reported case as of yet, it’s certainly a possibility. The fact that the client took reasonable care in making the IR35 decision will likely be considered by a court. |
If I use HMRCs CEST tool, HMRC will stand by the outcome and won’t challenge it | False – NHS Digital is facing a £4.3m tax bill after HMRC challenged a significant number of outside IR35 statuses despite the assessment being conducted using their own CEST tool. Just using the CEST tool is not enough evidence of reasonable care, and ultimately the client is still responsible for making the right decision. |
What is reasonable care with IR35?
The term ‘reasonable care’ is something you will hear a lot when reading about your responsibilities under the new IR35 reform. The difficulty most will face is that there is no statutory definition of reasonable care, but HMRC did release a guide to reasonable care during tax returns in February 2018 that can be used for reference.
HMRC will typically take individual circumstances into account when assessing whether reasonable care has been exercised. Best practice for clients would be to keep a written record of how they came to their decision.
The solution – IR35 Comply
The IR35 comply solution is perfect for end clients that want a much quicker and easier process for IR35. Our tool is cloud-based, and all assessments are fully traceable, storing evidence of decisions demonstrating reasonable care. There are 3 options to choose from:
Option 1 | Option 2 | Option 3 |
|---|---|---|
A high level RAG analysis. A very basic look at the job title, rates of pay and contract lengths and labels the role red, amber or green. | Role reviews – this will help to move the ambers into red or green, providing much more clarity on the specifics of the role. | A full thorough overview of a specific assignment, including all details required to make a full IR35 assessment and demonstrate reasonable care. |