Should your company use an IR35 status determination statement template?

From April 2021, all public sector and medium/large businesses that hire independent contractors must create status determination statements under the new off-payroll working rules.

In this article, we examine whether it’s safe for employers to use an IR35 status determination statement template when you’re deciding whether the provision of an individual worker’s services would make them a genuine independent contractor or a disguised employee in the eyes of HMRC.

To turn the new IR35 legislation to your advantage, please call CoComply on +44 (0) 203 051 9792, email [email protected] or fill out the form below.

Who is this article designed to help?

We wrote this article to help HR and procurement managers who have the legal responsibility to determine the employment status of contractors in:

• Public sector organisations

• Businesses with an annual turnover of £10.2m or more that meet the other qualifying circumstances as a medium or large company.

Introduction

As the end client (the beneficiary of services provided by a contractor through their personal service company), you are responsible for determining each contractor’s employment status. You must create a status determination statement covering each contractor you provide work for. You must keep copies of all status determination statements.

If you are not the fee payer because, for example, you’ve hired through an intermediary like a recruitment agency, you must also distribute copies of status determination statements to all other parties in the supply chain.

You must take what HRMC calls “reasonable care” when creating each status determination statement. You must decide whether the actual working practices of each self employed contractor resemble that of a genuinely independent business owner or a worker (“disguised employee”) under IR35 guidelines.

If you conclude that your contractor’s arrangement with you is that of a worker, they will be within IR35. This means that you (or the fee payer) will have to deduct income tax, National Insurance contributions and (if applicable) the Apprenticeship Levy from their invoice.

Please take advice if a contractor uses a limited liability partnership and has expressed a desire for the services they provide to be considered outside IR35.

Is it safe to use an IR35 status determination statement template?

There are a number of providers of IR35 status determination statement templates online. Following examination, they ask all the right questions.

However, we would respectfully caution against using templates for the following four reasons:

1. Commercial pressures

The clients we work with are under pressure from senior management to declare their engagement with contractors outside IR35 for the following two reasons:

• Workers inside IR35 cost a lot more than contractors outside IR35

• The most talented contractors, the ones who can bring real value to your organisation, are determined to only work outside IR35.

We have seen in the past how this has led to confirmation bias. In other words, the people in your company you put pressure on to get the right result seek only to find evidence that a contractor is outside IR35.

On inspection, an IR35 specialist, employment solicitor or HMRC will likely judge that this evidence has been given too much weight in coming to a determination.

2. Contractors may appeal

If your contractors find out you’ve used a template, they may sour your relationship with them. This is especially likely if you declare their arrangement with you within IR35.

Under IR35 legislation, you must give contractors the right to ask you to reconsider your determination. You have 45 days from receipt of a request appeal in writing to respond.

They can appeal against your decision until the last payment is made for their services.

3. No account taken of ongoing factors related to IR35

A common mistake made by many employers is believing that the IR35 status determination statement they create prior to the first day of a contractor’s work constitutes reasonable care.

You should consider a status determination statement as a living document which needs updating on an ongoing basis to reflect the realities of your engagement with a contractor.

For example, if a contractor sends in a substitute to do the work agreed upon and you raise no objection, you should record this as it’s strong evidence that your arrangement is outside IR35.

The level of control you have over your contractors’ working hours and place of work is also a factor in determining IR35. Keeping records of the hours and places worked can also be used as evidence if HMRC decides to investigate.

You may find that your actual arrangement with a contractor differs from the terms set out in the contract after work begins. You’ll then need to reassess their status and create another status determination statement for them.

4. Historical case law

The history of IR35 goes back over decades and, in that time, a considerable body of case law has been built up. The verdict in many of these cases hangs on often very technical interpretations of both the governing contract and the actual working conditions.

IR35 is full of grey areas. It’s safer to have an experienced employment consultant like CoComply determine whether certain nuances of your engagement with a contractor would place them inside or outside IR35.

Get professional help with your status determination statements from CoComply

IR35 determination for employers is complex. You need to consider IR35 determination is an ongoing process, not a one-off event.

CoComply works with employers from before your engagement with contractors begins right to the end of their engagement with you. If you’re determined to make your company as attractive to the most talented contractors by making sure all arrangements are outside IR35, talk to us.

To turn the new IR35 legislation to your advantage, please call CoComply on +44 (0) 203 051 9792, email [email protected] or fill out the form below.