IR35 assessments under the new rules

End clients now must determine IR35 status for their engagements with independent contractors.

So, what choices does a private sector and public sector hiring manager or procurement officer have for testing employment status?

To speak to IR35 assessment specialists, please call CoComply on +44 (0) 203 051 9792, email [email protected] or fill out the form below.

Do you need to carry out an IR35 assessment?

IR35 is used to determine whether a person in an off-payroll working arrangement is truly self-employed or a “hidden employee”.

IR35 status needs to be determined when there is an intermediary between your company and the person carrying out the duties required. That intermediary could be the contractor’s own limited company (sometimes called a personal services company).Your contractor is likely to be outside IR35 if they:

• are exposed to some level of financial risk in performing the contract

• work for more than one client

• put right work that has gone wrong at their own expense

• is not exposed to significant oversight while performing the work

• can send in someone else to do the work instead (the “right of substitution”)

• the engagement has a set end date and deliverables (i.e. you are able to determine ‘done’

It’s more complicated than this but these are generally reliable base guidelines for establishing genuine self-employment. The less independence contractors have, the more likely HMRC would consider them to be employees. In that case, the fee payer must deduct income tax and National Insurance contributions (and, if applicable, the Apprenticeship Levy).

When you come to your decision, you must provide your contractor with an IR35 status determination statement, or, where the contractor is not engaged directly to you (e.g. they are engaged via a recruitment consultancy) the next party in the supply chain.

5 ways to determine an individual’s employment status…

The five main ways in which you can determine status for your off-payroll workers are as follows:

1. Use the HMRC CEST tax tool

HMRC’s CEST (Check employment status for tax) online tool is the first choice for many hiring managers wanting to find out if their contactors’ current and future working practices fall within IR35 for tax purposes.

If you do rely on determinations based on CEST, please note that it does not record your results. You should take screenshots of each step of each test you carry out as part of your audit trail showing that you took reasonable care.

Be aware that only 25% of employers are confident of the results given by the CEST tool. It only gives a determination on four out of every five cases. When tested against IR35 First Tier Tribunal decisions, it got many of them wrong. Click for further information and detailed guidance on how to use CEST, HMRC’s IR35 determination tool.

2. Do it yourself

You can carry out your own IR35 assessment by consulting the online manual provided by HMRC.

It’s complicated. There are 224 sections to get through.

Without sufficient knowledge or training, HMRC may argue that the DIY approach does not exhibit the reasonable care required to conform to the legislation.

3. Recruitment agencies

Many recruitment agencies specialise in placing contractors with employers. They normally do this for a fixed percentage per invoice although some charge finders’ fees.

Many offer to run IR35 assessments on proposed contracts and working conditions of the professionals they’re placing. Although we’re certain these tests are offered in good faith and that there will be a high degree of diligence and expertise behind every status determination statement produced, there is a problem.

As the “end client”, it’s YOUR legal responsibility for determining IR35 status. If your recruitment partner gets it wrong, you will be the party liable for any fines.  Recruiters are rarely trained sufficiently and have a conflict of interests – they are motivated to want their contractors to be determined ‘outside IR35’, and answers can be easily manipulated to get the desired outcome.

4. Legal firms

Employment and general solicitors’ practices now offer to review existing and new contract reviews for employers.

They can create brand new contracts for you whose terms and conditions are outside IR35. For existing contractors, they can advise on the contractual and working practice changes needed to move an arrangement which may be inside IR35 back out again. If they get it wrong, you’ll be covered 100% by their insurance.

The contracts solicitors produce are generally watertight for IR35 purposes and the supporting advice is accurate.

However, please remember that contractual provisions are only one part of IR35 determination for HMRC. IR35 status is just as dependent on actual, on-the-ground working conditions on an engagement.

5. IR35 compliance-as-a-service

CoComply is the first IR35 compliance-as-a-service company.

CoComply provides the same level of contractual due diligence that you’d expect from legal firms on new and existing contracts. Our service is also fully insurance backed.

That’s just the beginning of our service, however. From the point of engagement onwards, CoComply manages and evidences IR35 compliance on an ongoing basis for each contractor. By outsourcing this work to us, we free up your internal resource capacity and allow you to attract the specialist, highly agile UK and international workforce you need to work with.

For your internal teams, we provide training and mentoring to build their understanding of IR35 Off-Payroll legislation. Training can be provided online and via webinars or in person at your premises.

To speak to IR35 determination specialists, please call CoComply on +44 (0) 203 051 9792, email [email protected] or fill out the form below.