Earlier this month we ran a webinar hosted by Kingsbridge’s own team of IR35 experts to arm recruiters, accountants, and end clients with the information they need to prepare themselves and their contractors for the impending offpayroll tax reforms, now coming into force in April 2021.
While the COVID-19 pandemic may have halted proceedings and postponed the IR35 reforms by a year, we all know that this is just a temporary reprieve and now is the time to be proactive. Already, the impending rule changes have pushed some prominent businesses to cease engaging limited company contractors; this risk-aversion is counterproductive (especially now when businesses need a flexible workforce more than ever) and inexcusable when there are plenty of options for approaching the IR35 reform correctly. We’re here to help.
On the webinar panel we had Head of Business Development Andy Robinson and IR35 Project Manager Ryan Dawson who shared everything you and your contractors need to know about IR35. They also gave a comprehensive overview of the tools and products we have in place to protect your business, including our IR35 contract reviews and IR35 insurance.
For those who weren’t able to make the webinar, you can find the full recording here. We’ve also compiled some frequently asked questions that cropped up during the webinar, along with full responses, which you can read below:
YOUR FAQs ANSWERED
How do you think the legislation will be modified in preparation for April 2021 following the delay?
It’s almost certain that the proposed IR35 reforms will go ahead as originally planned. The government has made it clear that this is a deferral, not a cancellation and that it remains committed to introducing these new rules to ensure that limited company contractors pay broadly the same tax as employees.
Following widespread criticism of the impending changes, the Treasury carried out a review of the reforms and made several slight alterations, including:
Taking a softer approach. HMRC have said they won’t penalise anyone with inaccuracies relating to off-payroll working rules during the first year of the rollout, unless it’s deliberate. However, the delay may have somewhat negated this point with the 12 month deadline extension potentially serving as the ‘soft landing’ period;
Clients must supply information. This means they must respond to requests of information about their size to ensure the rules cover all medium and large organisations – those with at least 50 employees;
No new investigations for tax years before 6 April 2020, unless HMRC has good reason to suspect fraud or criminal behaviour.
Nevertheless, this reform is still a major change and HMRC is showing no signs of backing down.
Is there a risk to the client/agency for not assessing contractors and adopting a blanket ban approach? What would you suggest if clients adopt this policy?
Thankfully, the one-year reprieve has allowed many contractors to continue operating through their limited companies as many businesses have postponed their decision to ban public service company (PSC) contractors. But we believe this is only a temporary measure and as we approach the new deadline many will revert to the practice of blanketing, which is clearly a huge issue.
In reality, end clients cannot legally take a blanket approach to IR35, but they can still stipulate that they don’t want to engage with PSCs or contractors. Some see this as a quick fix, but a blanket approach is not without its own risks. Clients that take this position stand to lose many of their highly skilled contractors, who could easily head to a direct competitor.
Any contractors facing a blanket ban have a statutory right to contest it. The standard process for disagreements with a status determination statement involves putting forward evidence to the client for them to consider. They must then review the determination and respond with an outcome within 45 days, including a reason for the decision.
Are clients using fixed-term contracts to bypass IR35?
This is certainly one option that clients are turning to. By offering a fixed-term contract to a contractor, they essentially make them an employee of the organisation, which means they will be paid and taxed in the same way as an employee and IR35 is no longer a concern. However, this will affect their take-home pay and many contractors will understandably refuse and explore other options. Evidence shows that the difference in take-home between an outside IR35 contract and a PAYE engagement can be anything up to 25%.
What would be the benefits of carrying out an IR35 review over putting contractors through an umbrella company?
Engaging contractors via an umbrella company automatically removes the risk of IR35 compliance as the umbrella company essentially becomes the contractor’s employer, deducting taxes and NICs at source – but this arrangement isn’t without its drawbacks. Contractors will pay employment taxes plus a service charge, which impacts the amount they take home. For some, an umbrella company is a suitable alternative, but others would understandably prefer to work with more flexible businesses than enter into an umbrella arrangement.
Businesses that choose to take a pro-contractor approach and assess individual statues fairly and accurately are far more likely to win in the long term, benefiting from attracting and retaining some of the best talent on the market.
Has the lockdown and lack of financial help from the Government during lockdown for people running PSCs with an income >£50k helped the future case for not being considered employees?
In some ways, yes. While it does demonstrate a degree of financial risk that simply is not present for employees, and also helps to show that you are ‘in business on your own account’ (i.e. you’re running a genuine business), IR35 is by and large interested in how you are providing services on a given engagement, not the trappings around that engagement.
It’s best to view it as being similar to having multiple clients – helpful, but not determinative. Similarly, the positive benefit of not getting financial support from the government is somewhat offset in a lot of cases by the increase of employees working from home having a negative impact on contractors. Pre-COVID, employees working from home was a rare occurrence for employees but a helpful indicator for contractors that they are distinct from employees. Now, that line has been somewhat blurred.
If HMRC have promoted and improved CEST over recent years, stating that they will back the decision (if inputted correctly), why would clients turn to other external solutions?
Determining your employment status is not always straightforward and as previous high-profile tribunals demonstrate, HMRC’s own understanding of its tax regulations areis flawed and open to interpretation. Users of the CEST tool widely agree that it is still basic in terms of the types of questions it covers and there is plenty of room for error, which could mean you’re held liable for unwittingly providing false information.
Our team of IR35 experts at Kingsbridge are here to ensure these mistakes don’t happen. They carry out a comprehensive review for each separate contract engagement and assess all possible risk factors, giving you peace of mind about your IR35 status.
Clients are expected to take reasonable care when determining employment statuses, yet this hasn’t been defined by HMRC. How are you making sure that clients would be comfortable using your tool to make a determination?
The choice is entirely the clients as to which tools they use, and there isn’t really a one-size-fits-all approach that can be taken. While reasonable care hasn’t been specifically defined, HMRC have provided some guidance around what they consider ‘reasonable care’ looking like. ESM10014 (be aware it’s draft and subject to change) provides a look at the criteria clients are expected to operate in line with. This includes keeping records, seeking advice from third-party advisors, checking determinations to ensure validity, and ensuring staff that are undertaking determinations have a good understanding of IR35. Part of the Kingsbridge process is to help a client understand their requirements and, if necessary, provide staff training to ensure a base level of knowledge is obtained. The tool itself also features multiple checks and the option of adding additional reviewers to ensure that a full audit trail is provided, and that visibility is had by all parties.
Can you give an approximate idea of costs per assessment?
A single review costs just £50 plus VAT or if you purchase our IR35 Protect Premium insurance package, you get access to unlimited status reviews. Each review includes an instant IR35 report that will outline the strengths and weaknesses of your engagement, as well as specific feedback on your answers. Any indeterminate results will be manually reviewed by our IR35 consultancy team who will be in touch to discuss the issue in more detail.
Can the IR35 insurance policy be purchased on a month-to-month basis?
The policy is an annual policy, but it can be paid for monthly. As a rule, we would suggest ensuring coverage even in periods you are not actively providing services as HMRC can launch an enquiry into historic periods too.
For more information about our market-leading IR35 status determination tool and comprehensive tax insurance, please email IR35@kingsbridge.co.uk. Our team will be happy to help you prepare for the upcoming off-payroll reforms.
