The IR35 deadline is just three weeks away so are you ready? This is the new regime for the private sector whereby the engager, the end-user, becomes responsible for determining their contractors' employment status and assessing whether or not IR35 applies. Last week Personnel Today ran an article on the usual raft of employment law changes that April brings every year and top of its list of things for HR to do is IR35. They say 'employers should review their contracts and put in place the necessary procedures to ensure compliance' which is exactly right but, given most employers have been doing that for weeks and months, what is there left to do? One area we notice that's getting overlooked by some employers is the supply chain. Under the rules if there is an agency in the chain which supplies the contractor through a personal service company, a PSC, the agency is the 'fee payer' because it is the party that contracts with the PSC. As the fee payer, the agency will have the obligation to operate PAYE/NICs. However, crucially, it is the end-user that retains responsibility for conducting the status determination – a point which can be missed in the due diligence. So let's hear more about that. Chris Thomas is a tax specialist who has been flagging this point with a number of clients. He joined me by video-link from Birmingham to discuss the point:
Chris Thomas: “Yes so the point essentially is that we've been helping clients quite a lot with cases where they've got workers or contractors who are being supplied to them via agencies, for example, where it's obvious that what we've got here is a supply of particular individuals to fill particular roles but what we're finding that clients aren't necessarily thinking about in quite the same way is other contracts with other types of supplier where there may be individuals who are being provided who are doing work for them but that isn't necessarily being captured by the due diligence process within the engager. So a typical example of that would be if you've got a contract with the supplier for some sort of consultancy work, for example, for a particular project to be delivered and it may well be that as part of that you have particular individuals who are personally performing services for you as the end client and ,if you do, then you need to be asking the question of how are those people engaged because if, for example, the supplier contracts through a personal service company, and that person is working on something for you as the end client, then you may very well find that actually they are within scope of IR35 and you need to be doing status assessments etcetera."
Joe Glavina: "So who's job is it to look at that and sort it out? Is that for HR?"
Chris Thomas: "Yes, so I think it's HR but it's also working together with the IR35 team which, hopefully, a lot of clients will have in place. So pulling in procurement, for example, and legal and the tax team as well, potentially, because the key really is partly a case of understanding the contracts where this might actually be in play because, obviously, if you've got a contract for supply of widgets, you know, it's not going to be, but there'll be other cases where, perhaps, you can identify that there may be services here that could be being provided in this way. So that's the first thing to think about. Then the other thing is going to be a case of looking at the contracts that you've got in place with those higher risk suppliers, if you like, and making sure that there are some provisions in there that protect the interests of you as an end client. I suppose the final thing would be just understanding that you may need to get some advice on this, understanding the sort of situations in which, actually, you could be caught by IR35. So is it a fully outsourced service, for example, where you don't care who it is that actually does the work for you? Or is it perhaps more the case where you've got key people who are named in a contract where they're going to be working under your team's direction and control? Those are the risk factors that would tend to make it more likely to be caught."
Joe Glavina: "Can I just ask you about the 6 April deadline which is just three weeks away. The Revenue has said they're waiving IR35 penalties for a year. What should we read into that?"
Chris Thomas: "I think they recognise there ought to be a period where this kind of beds in but I would say don't take that as licence not to take this seriously and put everything in place that needs to be in place because yes they may be a bit more lenient in terms of penalties etcetera but if you're an engager you want it to be clear that you are taking your responsibility seriously when HMRC look at what risk your arrangements do or don't pose and classify you accordingly. You want to be making clear that you've thought about this and you've got everything lined up and also it takes time to put agreements in place to the extent you need to change things you've got in place with suppliers etcetera. So really you do need to be acting now if you haven't already.”
That point about the Revenue waiving penalties for a year was a decision they made on 15 February and they published a policy paper explaining the scope of that approach. It applies 'unless there’s evidence of deliberate non-compliance' but, as you heard from Chris, you really do need to aim to be ready and fully compliant by 6 April and be ready to demonstrate that if and when HMRC come calling. We have put a link to that guidance in the transcript of this programme.
- Link to government IR35 policy paper (issued on 15 February 2021)