Over the course of our three IR35 forums in Manchester, London and Leeds, our keynote speakers answered a range of questions from our audience of end clients, most of whom we’re from large enterprises in the private sector. Their queries give real insight into the concerns and clarifications needed by professionals who will be directly affected by the changes IR35.
As part of our informed approach to IR35, we bring you the answers from our experts at Weightmans LLP, Champion Contractors and Morson, to help you get up to date with the legislative changes to off payroll working, due to come into effect in April 2020.
The questions below are answered by IR35 specialists from employment law firm Weightmans LLP, contractor services company Champion Contractors and Morson Compliance Director, Phil Beardwood. For more information, download parts 1-5 of the IR35 Knowledge Series in our FREE IR35 eBook 'How to Navigate Changes to IR35', visit our IR35 portal or contact us directly at IR35@morson.com.
- Who is liable for determining IR35 status? The end client, the agency or the contractor?
- What are the risks associated with IR35?
- How do I define whether a worker is inside or outside of IR35?
- How do I analyse the scope of my contractor’s role?
- Who within a company should lead the IR35 legislation?
- As a hiring manager, should I treat my permanent employees and contractors differently?
- Once determined, is the IR35 status of a contractor set?
Q1. Who is liable for determining IR35 status? The end client, the agency or the contractor?
Mark Leach, Weightmans LLP - under the new plans, the responsibility for paying income tax and national insurance shift from the contractor to the hiring party and the agencies supplying them.
If you are engaging an agency as part of your supply chain, as of April 2020, the liability will sit with the fee payer of the worker i.e. the agency. However, the determination of status must be assessed by the end client.
Q2. What are the risks associated with IR35?
Phil Beardwood, Morson - Unfortunately, the HMRC tools and information required for clients to make an informed choice have been widely criticised (particularly the online CEST). Given the penalties for making an incorrect employment status determination, some clients have opted to make blanket ‘inside’ IR35 decisions.
As an end client, what is your appetite for risk? If you deem all your workers in scope and your competitor deems them out of scope, you’re going to lose your workforce. You won’t be able to win contracts because you won’t have the workforce to deliver them.
Q3. How do I define whether a worker is inside or outside of IR35?
Pili Fernandez-Mahoney, Weightmans LLP - You need to think about, how that person is being treated on a day to day basis. Do they receive the same benefits as a permanent employee? Benefits such as use of the company canteen or a parking space are other ‘personal circumstance’ factors which are going to feed into you determining whether your contractor is inside or outside of IR35.
It comes down to the fact that you must be treating your contract and permanent employee’s differently, because their employment status is different.
Q4. How do I analyse the scope of my contractor’s role?
Chris Bloor, Champion Contractors – Going through an Employment Status Indicator document will help you (the client) to get a picture in your mind of the role and how the contractor is typically providing their services. All questions must be considered and answered honestly however for some, you may not be able to categorically confirm the answer (e.g. true or false) and in these circumstances we would ask that you provide further comments. When compiling the report Weightmans can consider these comments and provide guidance on how they could be interpreted by HMRC and allow you to further consider the question compliantly and with reasonable care. This will allow you to understand and filter your populations in a much clearer way.
Pili Fernandez-Mahoney, Weightmans LLP – The devil really is in the detail. When filling out determination reports it is important to be as detailed as possible. In our experience vague or short answers will arouse suspicion with HMRC. Even though you may know the answers, it is important to prove why a contractor works in a particular way or does a particular job, in order to avoid having to explain again further down the line. Merely putting ‘confidentiality’, ‘data protection’ or ‘security’ as a determination won’t mean anything to HMRC; these words mean nothing without some explanation behind them.
Q5. Who within a company should lead the IR35 legislation?
Phil Beardwood, Morson - When clients are wondering where the assessment of IR35 should sit, our advice is to form a stakeholder group and ensure that a representative from each relevant department is involved. They must engage with hiring managers, as this population will know what the contractor is doing on a day to day basis. The stakeholder group must educate the hiring managers in respect of IR35 as it is they who need to understand the difference in the way that contractors and permanent employees must operate.
Q6. As a hiring manager, should I treat my permanent employees and contractors differently?
Phil Beardwood, Morson - Yes, because they are different. The advantage of having a contingent workforce resourcing plan in place and procedures to follow is that hiring managers may not know whether the contractor is PAYE, Limited or Umbrella, and the contractor is therefore treated as an employee. Of course, you must treat every worker with respect and as part of the team, however you need to decide whether they should be sat in team meetings to discuss company pensions, for example.
IR35 presents an opportunity for the hiring managers to review their processes.
Q7. Once determined, is the IR35 status of a contractor set?
Chris Bloor, Champion Contractors – Not necessarily. Some things that may have determined a contractor out of scope can be easily resolved i.e. attending the staff Christmas party or using a company fuel card. If you take these things away from the individual, you can bring them easily back within scope.
Get your copy of the full IR35 e-book here or, for an insight into what your contractors are thinking download the results of our contractor survey here.