IR35 – 5 Critical Checks – Have you captured all your contractors?

Up to 1.5 million Personal Service Company Contractors (aka PSCs) were impacted by the IR35 Off-Payroll reforms that finally came into force on 6th April 2021, after years of debate and a 1 year postponement due to the COVID-19 pandemic.

Medium and Large sized organisations across the UK had been running status checks on these PSCs to see if they were caught by the reforms prior to the deadline.

The impact was significant for organisations that rely on the flexible workforce to keep their businesses agile. It was widely expected that organisations that ran compliant assessments and implemented a compliant and robust ongoing framework would reap the benefits of the flexible workforce as we emerge from the pandemic.

Those that did not will be counting the increased costs and the lack of talent available to them in the years to come.  A high price to pay for not meeting an issue head on and innovating to find a solution.

CoComply provides insights to help you check you captured all those that could pose a liability to your organisation, ensure the correct processes were followed and an audit trail was created, which is a legal requirement.

1. How did you identify your PSC Contractors?

HMRC do not define a PSC, but you should consider limited company services providers that:

Have only one owner director and shareholder with no other employees

A small group of director shareholders that are providing services with no other (or very limited number of) employees.

If you are unsure, it could be worth seeking expert advice.  Experts check 12-15 different aspects of each supplier to define whether it could meet the criteria of a PSC and therefore whether it may be impacted by the Off-Payroll legislation.

It is critical to keep records of how you identified your PSCs.  If you hired an expert consultancy to run this process on your behalf, they will have kept robust records.  Ensure this is the case and use a reputable organisation.

2. Did you check your Directors?

In our experience, PSCs that are commonly overlooked are those in a position of a non-executive director.  Often, NEDs will invoice for their services to the business through a limited company.

An individual that holds office in the organisation to which they are supplying services is ALWAYS caught by IR35.  Therefore they should always be considered as ‘inside-IR35’.

3. How far back did you go?

Organisations typically have an extensive list of historical suppliers saved in the finance or procurement system, so future services can easily be engaged without under-going future compliance checks.

COVID has made it necessary to take a much longer historical view when considering which suppliers you have used that may be utilised again in future and therefore may present a compliance and liability risk.

When considering PSCs who may come into scope of the reforms and reviewing your registered suppliers, it is important to consider PSC suppliers that:

–   Have been engaged since April 6th 2021

–   May be engaged from April 6th 2021 onwards

Example:

ABC Services Ltd is a highly skilled PSC Service Provider that supports organisations on innovative technology implementation projects and has a direct relationship with line managers / requisitioners.  ABC provided services to Tech Corp from August 2019 to March 2020.  When COVID struck, all but essential service providers for Tech Corp were restricted, including the services ABC provided.

Therefore the project was put on hold in March ”20.

Tech Corp considered their PSC identification criteria in early 2021, they looked at engaged services during the last financial year, from April ’20 to April ’21.

In July ’21, re-emerging from the COVID pandemic, Tech Corp re-engages the services of ABC to consult on a discovery exercise with a view to re-starting the programme.  ABC has not been identified as a PSC service provider within the finance or procurement services system and therefore begins providing services against a new PO without any new compliance checks.

Tech Corp is non-compliant with the Off-Payroll reforms and therefore building a liability with HMRC.

4. Are those you have registered as self-employed, genuinely self-employed?

There is often confusion between self-employed and those operating through a limited company.  This is often genuine, rather than sinister. If a service provider informs you that they are self-employed, have you ensured that by cross referencing, for example, bank details and invoices?  If there is a limited company name on the invoice, the individual or you are making payments to a business bank account, it should require further investigation.

5. Consultancies

Many organisations have the incorrect view that if they are buying ‘services’ from a consulting business, IR35 does not apply.

However, if a consultancy is using a PSC supplier to deliver services, the liability may be with you as the end client.

HMRC have very specific rules around who is deemed to be the end client, and we have seen many clients assuming they are protected when they are not.

Just because there is a statement of work or MSA in place, it does not mean that you are not responsible for IR35.  More often than not, clients will find they are the end client in the supply chain, and therefore responsible, if they utilise a service provider who uses PSC Contractors.

Takeaway Points

HMRC expects all companies to have taken the Off-Payroll reforms seriously.  This includes:

• Keeping a robust audit trail of your decisions

• Documenting your records

• Implementing a robust and compliant future engagement process

• Sourcing external expert help, if you don’t have a subject matter expert in house

The Off-Payroll Reforms were not just about preparing for April 6th. This was just the start of the compliance pathway.  

Did your organisation get ready for April 6th ’21 and are you concerned that attention and standards may have slipped?  How are you managing organisational reform change?  How will you deal with future adaptation to the legislation?

IR35 is a very manageable change for organisations.  First and foremost, ensure that you have the right steps in place to identify PSC contractor suppliers.

For an informal discussion on IR35 management for your business or organisation, please fill in the form below.