IR35 update

Now the dust has settled from 2021’s Autumn Budget speech, it’s time to filter through the noise and extract exactly what it means for you.

Rishi Sunak started as he meant to go on – in overwhelmingly high spirits. The Chancellor opened by announcing the revised annual growth rate from 4% to 6.5%, relishing in confirming the UK’s return to pre-pandemic levels before the year’s out. Promises to tackle the skills shortage by investing in a high-skilled economy were positive too, as Sunak proclaimed he is ‘backing business’. 

So, what does this all look like for specific sectors? How do the self-employed fare, and has the outlook for employers and contractors actually improved? We put the Budget under the microscope…        

Happy hospitality and invested infrastructure 

After being battered and bruised throughout the pandemic, hospitality businesses finally received some respite. For the next 12 months, they can benefit from a 50% business rates discount up to the value of £110,000. It’s the biggest single-year tax cut in 30 years. 

The Chancellor also stated he will be using Brexit as a stepping stone to radically simplify our ‘outdated’ alcohol duty system. The number of rates will be reduced from 15 to 6. This includes a draught relief on beer and cider, and a scrapped surcharge on sparkling wine. All other initially planned alcohol duty increases were cancelled at midnight on the day of the speech too. This is a welcome relief for pubs who were already struggling pre-pandemic. 

Moving to infrastructure, and by 2026/27, Sunak targets a £22bn growth in research and development investment. Additionally, Innovate UK’s core budget is up to £1bn, while £30bn will be invested into new green industries. Reaffirming his views on future success and lifelong learning, the Chancellor also increased skills spending by a huge 42% to £3.8bn – a vision of opportunity for the construction industry.

The devil’s in the detail

Heavy infrastructure investment and further duty freezes is good news on the whole for contractors and employers in this sector. Namely, the cancellation of the planned rise on fuel duty means an average tank will cost £15 less per car, equating to £1,900 less per year. In addition, the lack of news around Capital Gains Tax triggered a collective sigh of relief.

But while the 50% increase in R&D bodes well, the strong focus on domestic investment heavily limits firms who use contractors outside of the UK. And although the Chancellor cancelled and froze planned increases around alcohol and fuel duty, there was no mention of other raw and recent changes such as Corporation Tax rises, National Insurance and dividend changes, and the IR35 reform.

A rose-tinted view

At surface level, the tone of the 2021 Autumn Budget was overwhelmingly positive. But it doesn’t undo the aforementioned recent changes that have wreaked havoc for employers and contractors over the last 18 months. Overall, the Budget offered very little in the form of reassurance or support for the millions of self-employed businesses who have already faced severe financial hardship.

So, whether you’re a freelancer, a contractor, a recruitment agency or opening an office overseas, you need someone on your side. Workr Group offer a range of services and solutions to help you tackle the obstacles ahead. For more information, call us on 0208 10 60 000, email info@workrgroup.com, or book a call today.

Six months after introducing the Off-payroll working rules into the private sector, it appears that the HMRC is progressing to the next stage of its IR35 policing plan.

As we have pointed out many times before, IR35 is not something you can just avoid or ignore.

Why do we say this?

Well, over the last couple of weeks, we have seen and heard confirmation that HMRC has sent Requests For Information (RFI) letters to a large number of companies. In particular, businesses in the Oil and Gas, Energy and Renewables, Aerospace, Rail, IT, Infrastructure and Construction industries.

The main focus of the request is for documented evidence of records, processes and systems used for the off-payroll legislation, with compliance the apparent target. 

We do have a word of warning, however. The RFI also requires details of those contractors transitioned to PAYE models (either agency payroll or Umbrella) upon the introduction of the reforms. It also asks for records of contractors that transitioned to permanent employees.

Both requests would infer that HMRC is keen to understand whether businesses have made blanket statement decisions following the introduction of the reforms. This would likely be considered a lack of reasonable care by HMRC if found to be the case.

What will a Request For Information include?

It’s important to note that an RFI does not mean that there will definitely be an investigation. As we understand it, it is just a starting point from which the HMRC will assess the information received and then determine whether they feel an investigation is necessary.

HMRC will likely look for trends, whether positive or negative and then proceed from there.

As we have already pointed out, the first section of the RFI refers to guides, processes and systems. A robust system with clear and documented processes should give engagers a solid foundation to argue a reasonable care case, even where errors occur. The RFI also requests evidence of how the process is applied consistently throughout the organisation. In an investigation, HMRC will look beyond any documentation and processes to assess the working practices in a “substance over form “approach.

 In other words, does what happens on the shopfloor reflect what is documented or included in contracts. If not, there could be consequences.

Interestingly, the RFI also asks about the test systems used to make status determinations. Specifically, the RFI asks whether the engager has used the government’s own CEST (Check Employment Status for Tax) test or any other test, with details of such required.

The remaining details required centre around the number of contractors and the methods through which they are engaged.  

What comes next?

As we’ve previously stated, receiving an RFI is not a definite indication HMRC wants to investigate. However, it’s an excellent indicator of what they might look for if they decide to.

Based on the RFIs sent out, we are confident that those organisations with a robust process for making status determinations will fare well under scrutiny. Following the guidelines for reasonable care and applying consistency and common sense to the determination process should go a long way towards satisfying HMRC’s initial enquiries.

If you and your business need to utilise or continue using contractors but have concerns about meeting the requirements of the off-payroll legislation, then Workr Compliance can help.

Workr Compliance can provide you with impartial advice on engaging high-calibre specialist contractors whilst effectively managing your supply chain in an efficient and compliant manner.

We can help you remain competitive in the demand for specialist skills and talent whilst meeting the requirements of the off-payroll legislation and minimising the risk of an HMRC investigation or incorrect assessment.

For a free, no-obligation audit and assessment of your IR35 compliance process, you can speak directly with Andy Webster, Founder and Director, Workr Compliance, on 07827 810851 or at aw@workrgroup.com.

It’s fair to say that, in my time supporting the temporary labour sector, I have, on many occasions, witnessed engagers treating contractors in much the same way as employees.

The off-payroll legislation was introduced to combat this very practice. Not because the treatment was unfair in any way, but because such behaviour contradicted the spirit in which specific tax laws had been intended.

In essence, the off-payroll legislation was introduced to ensure that if a worker was acting like and being treated like an employee, often defined as a disguised employee, then the income generated should be taxed in the same way as an employee’s income.

However, with responsibilities for IR35 previously sitting solely with the contractor, engagers had little need to invest time and money understanding the fundamentals of a piece of legislation that did not relate to them or have any impact on their business performance or profits.

Contractors are not employees, so don’t treat them like employees

Following the off-payroll reforms in April 2021, engagers in the private sector have now had the responsibility for the off-payroll legislation placed squarely at their door.

Failure to correctly assess the employment status of a contractor engaged by their business could result in fines and penalties for engagers.

All of a sudden, the tables have been turned and engagers have found themselves having to read up on the legislation and gain a true understanding of its implications.

In my opinion, the situation following the reforms in the private sector is clear and simple.

Engagers should hold no fear of utilising contractors who provide their services through an intermediary. However, contractors are not employees, so don’t treat them like employees.

Setting clear parameters and deliverables

If we treat contractors like the service providers they are, and not like employees then we should meet most of the constraints of the off-payroll legislation.

Having a clear and defined plan of what the contractor is being engaged for and for how long will help to clarify the distinction between service provider and employee.

Setting clear parameters and deliverables in the form of a statements of works (SOW) prior to the engagement will give all parties, including any external observer, a transparent and defined picture of the nature of the arrangement.

The SOW should include timescales, milestones and gateways necessary to review the progress and performance of the project.

Deliverables should be defined, achievable and agreed to by all parties along with the financial implications of failure to deliver.

The whole arrangement should contrast to that of an infinite employment arrangement where the employee gets paid irrespective of performance and delivery. 

Consistency is the key

Importantly, this methodology must be practiced consistently throughout the organisation.

Simply having a set of written documents that prescribe the above will not be enough to meet the demands of an HMRC investigation.

If contractors are providing their services on site, as is often necessary, inviting them to team meetings or providing them with corporate workwear will undermine the whole arrangement in the eyes of HMRC.

Treating contractors like employees in the workplace must be avoided. From the receptionist to the MD, all members within the organisation need to understand the difference between a contractor and an employee, and treat the individual accordingly.

Guidelines and processes regarding the engagement and treatment of contractors should be clearly communicated throughout the organisation to ensure that there is a consistent approach to contractors throughout the organisation.

Providing training for those that may come into regular contact with contractors or utilise the services of contractors from time to time is also a good way of ensuring consistency in the treatment of contractors.

Whatever you decide to do, consistency is key.

Workr Compliance – helping you to utilise contractors consistently and compliantly

If you and your business have a need to utilise or continue using contractors but have concerns about meeting the requirements of the off-payroll legislation, then Workr Compliance can help.

Workr Compliance can provide you with impartial advice on how to engage high-calibre specialist contractors whilst effectively managing your supply chain in an efficient and compliant manner.

We can help you remain competitive in the demand for specialist skills and talent whilst meeting the requirements of the off-payroll legislation and minimising the risk of an incorrect assessment.

For a free, no-obligation audit and assessment of your IR35 compliance process, you can speak directly with Andy Webster, Founder and Director, Workr Compliance, on 07827 810851 or at aw@workrgroup.com.

In a nutshell, we’ve supported our clients with impartial and compliant advice on continuing with business as usual (BAU) post IR35 Reform.

Since the introduction of the IR35 reforms to the private sector in April this year, we’ve been working closely with engagers and agencies to meet the new legislative requirements. We’ve consulted with them through the preparation phase and assisted them in formulating working practices that allow them to continue with BAU.

In our previous article, IR35 Reforms – Key Lessons Learned, we highlighted how introducing the Off-payroll legislation reforms was not the end of the process. We went as far as to say that it was only the beginning of the IR35 compliance lifecycle.

Our approach with clients has looked at how to make the most of the legislation’s opportunity and gain a competitive advantage through a structured, compliant and reflective process.

IR35 Reforms for Engagers

The most significant change brought about by the legislative reforms was the shift in assessment responsibility from the contractor to the engager.

The changes represented a significant increase in responsibilities for compliance and reporting and, in many cases, prompted a recoil response.

In other words, the risk seemed too high and the administration too onerous.

Hence, we observed many engagers making blanket statements or ruling out the use of Personal Service Company (PSC) contractors altogether. Whilst this approach removed the immediate responsibility of IR35, the longer-term effects weren’t given much consideration, and the impact is now beginning to bite.

Skilled contractors are migrating to those engagers offering legitimate and compliant ‘outside IR35’ assignments, leaving those engagers who took the short-term, ‘avoid IR35’ approach with significant skills gaps and problems meeting deadlines, schedules or targets.

In contrast, Workr Compliance has been supporting engagers to implement compliant processes that efficiently and effectively manage the status determination phase, meet the reasonable care requirements of HMRC and compliantly utilise a skilled, flexible workforce to enable BAU.

As importantly in our opinion, we’ve also been supporting engagers with a review of the working practices they follow when engaging contractors.

In many cases before the reforms, engagers treated PSCs in much the same way they treated their employees.

Issuing of corporate clothing, invitations to company socials and the use of company canteens are just a small number of examples of practices that would lead HMRC to a ‘disguised employee’ verdict.

Workr Compliance has been working with engagers to evaluate their working practices when utilising PSCs. We have assisted them in formulating transparent and compliant methods and processes for engaging with PSCs that have been communicated throughout their businesses to ensure a consistent approach throughout all business functions.

In doing so, we have helped our clients gain a competitive advantage in attracting and retaining highly skilled talent whilst maintaining BAU.

IR35 Reforms for Agencies

One of the key benefits of working with Workr Compliance is that we offer an impartial service that supports agencies and the supply chain as well as engagers.

Following the reforms, agencies have come under immense pressure from engagers to maintain the status quo between the flexible workforce and the hiring community. A thankless task, given that those engagers that took a blanket approach removed PSC’s option to contract through their own limited company. Even worse, they forced them into PAYE models resulting in an immediate reduction in rate. Neither action is sitting well with the PSC community.

At Workr Compliance, we have been working closely with agencies in the supply chain to help them understand their role in the IR35 process. We’ve partnered with them to help present solutions or guides to their end clients, and we’ve assisted them in formulating strategies for retaining and attracting the skilled and white-collar talent pool.

IR35 compliance is an ongoing process

In all cases, we have been proactive in encouraging organisations and individuals that IR35 compliance is an ongoing process that requires regular review.

Maintaining a compliant process that is reviewed regularly is the key to avoiding errors, investigations and subsequent fines or penalties.

If your response to the reforms is subsequently causing you problems with administration or the retention or attraction of talent, it’s not too late to change.

For a free, no-obligation audit and assessment of your IR35 compliance process, you can speak directly with Andy Webster, Founder and Director, Workr Compliance, on 07827 810851 or at aw@workrgroup.com.

Since the introduction of the IR35 reforms to the private sector in April this year, Workr Compliance has been working closely with contractors, engagers and agencies to meet the new legislative requirements.

The fundamental changes in responsibilities brought about by the reforms have presented some significant challenges to the temporary labour supply chain. In recent articles, we have highlighted the risks associated with the blanket statement approach that many engagers appear to have taken.

We’ve also analysed how IR35 insurance policies, in support of a robust compliance and assessment process, might help reduce or even remove the risk of engaging contractors on an “outside IR35” basis.

And, we’ve assessed how the IR35 reforms have created a divide between project and hiring managers, desperate to retain or attract highly skilled specialist contractors and risk-averse legal and HR departments, keen to avoid the repercussions of HMRC investigations and IR35 assessment challenges.

So what have we learned in the first four months following the introduction of the IR35 reforms?

IR35 or not, the world keeps turning

First and foremost, the world hasn’t stopped turning. Businesses are continuing to trade and hire, and the need for a skilled and flexible workforce has not gone away.

On the contrary, in fact.

As the global economy emerges from the difficulties of the last 18 months, the outlook appears bright.

Investment levels are on the rise, and the economy is showing signs of a quick recovery. These signs are breeding confidence in the marketplace, and recruitment activity, including temporary labour, is expanding at record rates. According to the REC’s report on Jobs for June, “temp billings growth hit its highest for nearly 23 years”.

So what can engagers do to make the most of this resurgence whilst remaining compliant to the Off-payroll legislation?

IR35 Reforms – Lessons learned

It’s not too late.

Case studies in the public sector are now demonstrating HMRC’s approach to poor IR35 reform preparation and care.

The Home Office and DWP have both recently been issued with significant bills from HMRC as a result of carelessness and errors in their handling of the reforms.

It’s now almost five months since the IR35 reforms took effect but with HMRCs soft landing approach, it’s not too late to implement or improve processes to meet the off-payroll legislation.

Effective planning and collaboration in the supply chain

Our experiences over the last few months have shown us that those engagers that have “gone it alone” without engaging with their supply chain partners have experienced severe difficulties in getting the assessment program up and running effectively.

In many cases, suppliers have had to repeatedly return to engagers for clarification and guidance on how assessments have been conducted and concluded. Subsequently, we have observed far higher rates of challenges where engagers have not planned and collaborated with suppliers on how to achieve a valid status determination.

For further information on valid Status Determination Statements, see HMRC’s Employment Status Manual (ESM10013).

Compliance is an ongoing process.

One of the biggest issues that we have observed since the introduction of the reforms is the failure of engagers to plan for their IR35 responsibilities as part of their ongoing business processes.

Planning for, and responding to the introduction of the reforms only met the requirements of the legislation for engagers and contractors on assignment at that point in time.

We are now seeing engagers struggling with talent retention and attraction because they haven’t integrated their IR35 responsibilities into their recruitment and attraction frameworks.

For engagers to remain competitive and compliant in the contractor marketplace, IR35 compliance must form part of the ongoing “business as usual” process. 

IR35 – Business As Usual

Businesses should not underestimate the benefits of having a defined, robust and documented process for IR35 assessment.

Engagers prepared to invest in some simple processes and procedures, along with the support of compliant suppliers, can quickly and easily mitigate the risks posed by the new legislation and meet HMRC’s requirements.

At Workr Compliance we encourage anyone responsible for IR35 compliance to ensure that your determination process is fit for purpose and meets HMRC’s reasonable care requirements.

Although the IR35 changes are now in effect, it’s not too late to take action.

To help meet your reasonable care responsibilities concerning IR35 compliance, our specialist team at Workr Compliance can provide impartial advice and support.

For a free, no-obligation audit and assessment of your IR35 compliance process, you can speak directly with Andy Webster, Founder and Director, Workr Compliance, on 07827 810851 or at aw@workrgroup.com.

Since the introduction of the IR35 reforms to the private sector in April this year, one of the main topics of conversation amongst engagers has been risk. In particular, the risk posed to engagers by assessing their contractors as being outside of IR35.

In the period leading up to and post the Off-payroll working legislation introduction, many engagers took an ultra-cautious approach and opted to assess contractors as inside IR35. In some cases, they were even implementing policies ruling out personal service company (PSC) contractors altogether.

While these approaches have either significantly reduced or even removed any risk posed by the Off-payroll legislation, have engagers got it right, and can IR35 insurance policies play a part in reducing the risk of engaging contractors outside IR35?

Engagers risk-averse to new IR35 responsibilities

The main impact of the IR35 reforms was to shift the responsibility for IR35 determinations from contractor to engager (unless the engager qualified as a small business). Failure to make a determination, or take reasonable care in making a determination, would leave the engager liable for any subsequent incorrect or unpaid taxes.

As a result, many engagers responded with inside IR35 blanket determinations for all PSC contractors.

Whilst these actions removed some of the immediate responsibility and risk of the Off-payroll legislation, an element of risk remained. Blanket statements directly contravened HMRC’s reasonable care requirements and represented a significant risk for those engagers that followed this route.

IR35 Insurance – risk versus reward 

Our recent article, The IR35 divide, highlighted the conflict between risk-averse legal and taxation representatives and under pressure recruiters and managers who need specialised skills and talent.

The loss of specialised and high-calibre contractors due to “inside IR35” determinations or blanket statements was repeatedly raised as a threat to engagers looking to circumnavigate the IR35 reforms.

Therefore, we raised the question of whether accepting some IR35 risk with IR35 insurance backing would be outweighed by the reward of the business gained in doing so?

You can read more here.

IR35 Compliance and insurance

Evidence is already giving us examples of skilled contractors migrating to “outside IR35” assignments. For those engagers that made inside IR35 blanket statements, this migration is causing huge issues concerning skills gaps, workload capacity and project consistency. In some cases, engagers have already fallen behind on project timescales and risk incurring delivery penalties or stoppage fines.

With the economy showing signs of recovery and public investment increasing, the need for skilled and motivated contractors is also likely to increase. However, contractor availability has become a significant and immediate issue for engagers that took a risk-averse approach.

So can IR35 insurance make a difference? The answer depends on whether engagers are prepared to overcome their fear of risk.

A robust compliance process underpinned with a comprehensive insurance policy could eradicate almost all of the engager’s risk. Engagers with a robust due diligence process and some qualified, professional support should have little trouble identifying a supply chain and process that includes an insurance provision.

IR35 insurance policies provided on the strength of the compliance process will usually include First and Upper-tier tax tribunal representation, cover for previous tax years for up to six years, and cover all defence costs, including liabilities and penalties.

Engaging with fee payers (agencies) with insurance protection should leave engagers with very little to fear from HMRC’s transfer of debt provisions and everything to gain from a talented contractor workforce keen to provide their services.

What now?

Our Founder and Director of Workr Compliance, Andrew Webster, recently hosted a webinar with Markel Tax on IR35 insurance. For a complimentary recording of the webinar, please click here. 

As we slowly emerge from the difficulties of the last 18 months, the outlook for the economy appears bright.

We are beginning to see investment levels start to rise, high streets starting to reopen, and the economy showing signs of recovery. According to the REC’s report on Jobs for June, “The steady return to more normal business operations, improved market confidence and greater demand for staff all drove a further marked increase in recruitment activity in June. Permanent staff appointments expanded at the quickest rate since the survey began in October 1997”.

Particularly interesting was the news that “temp billings growth hit its highest for nearly 23 years”. This is surely a sign of businesses looking to get back to pre-pandemic levels but not quite confident enough to respond by taking on permanent employees.

While this might sound like a positive for contractors, the introduction of the IR35 reforms to the private sector earlier this year has created a divide within businesses that is likely to get worse as a result of recent good news.

Attracting talent post IR35 reforms

In a recent article, IR35 reforms – Warnings becoming a reality, we highlighted how the war for talent was probably the most significant risk of all to engagers as the economy began to recover.

The loss of specialised and high-calibre talent due to “inside IR35” determinations or blanket statements was repeatedly raised as a threat to engagers looking to circumnavigate the IR35 reforms. Contractors migrating to companies offering “outside IR35” assignments are leaving huge skills gaps and gaping holes in project capability and success.

Critically, this is not likely to happen gradually over time; it is happening almost immediately. We already see examples across various industries where engagers took a blanket approach and ruled all of their PSC contractors inside IR35 and suffered an almost instant loss of a significant and skilled section of their workforce. Leaders and Managers are now struggling to attract the talent and expertise needed to complete work and projects on time and to standard.

The costs of losing business, missing deadlines and project failure

This is where the divide caused by the IR35 Reforms really begins to tell.

The incorporated costs of failing to deliver on projects or missing deadlines for delivery can often reach hundreds of thousands, if not millions, of pounds depending on the size of the project.

Additionally, there is also the opportunity cost of future projects and work lost due to incapacity to deliver. Add in the costs of brand and reputational damage due to poor project delivery, reduced quality and extended completion times, and the potential impact on a business’s profit and loss is difficult to ignore.

Legal and taxation – IR35 risk-averse

In many cases, higher volume contract engagers have taken advice from legal departments and advisors to avert the IR35 legislation due to the risks and potential costs involved. It’s true that should an engager be found to have made an incorrect IR35 status determination, then the liability for any unpaid taxes and NI would fall upon them.

However, are the amounts of tax and NI accumulated really going to hit the hundreds of thousands that a failed project might incur?

HMRC has also actively promoted a soft introduction for the reforms, so engagers have the first 12 months to get their processes right before facing any financial penalties for incorrect determinations.

As an extra safety net, an insurance policy that supports a strong compliance process can almost completely wipe out the risk of IR35. Policies provided on the strength of the compliance process will usually include First and Upper-tier tax tribunal representation, cover for previous tax years for up to six years, and cover all defence costs, including liabilities and penalties.

Therefore, engaging with suppliers with insurance protection should leave engagers with very little to fear from HMRC’s transfer of debt provisions and everything to gain from a talented contractor workforce keen to provide their services.

The risks and costs associated with IR35 cannot be discounted. However, are they really comparable to the risks and costs associated with the inability to provide a service or deliver against a project brief?

Time to re-think your IR35 strategy?

It’s not too late to implement or change your process regarding IR35, and we encourage anyone responsible for IR35 compliance to ensure that your determination process is fit for purpose and meets HMRC’s reasonable care requirements.

To help you reduce IR35 risk, retain a competitive advantage and meet your reasonable care responsibilities concerning IR35 compliance, Workr Group’s specialist team can provide impartial advice and support.

For a free, no-obligation audit and assessment of your IR35 compliance process, you can speak directly with Andy Webster, Founder and Director, Workr Compliance, on 07827 810851 or at aw@workrgroup.com.

Over the past 18 months, most if not all businesses have had to change to some extent.

The impact of the global pandemic has left its mark everywhere, and for those private-sector businesses associated with the utilisation and supply of temporary labour, there was the additional challenge of the IR35 reforms.

Introduced in April 2021, the IR35 reforms fundamentally changed the responsibility and process for assessing contractor assignments, forcing IR35 to the top of the agenda and further exposing the need for supply chain compliance.

For suppliers in the temporary labour market, the pandemic has all but removed the face to face sales route and challenged how they develop business and manage clients.

So how will the introduction of the IR35 reforms to the private sector and a rapidly changing, more remote sales process affect the future temporary labour market?

The changing sales process

Face-to-face interactions have always driven the traditional sales process. However, advancing technology and digital communications have slowly influenced these traditional views, and the pandemic of 2020 has challenged them further.

Buyers and decision-makers now spend less time meeting with suppliers and salespeople and more time conducting their own independent research. The enforced lockdowns caused by the pandemic have only served to exaggerate this behaviour.

An automated sales process structured around a formal bids and tenders process is now the preferred route for buying decisions for many businesses.

IR35 status determinations and umbrella company due diligence

In the lead up to the IR35 reforms in April 2021, many large scale engagers took an ultra-cautious, although potentially misguided approach. Policy changes or blanket statements determining all contractors as being caught by IR35 have been prominent.

As a result, the Umbrella company solution has been promoted as an alternative by those suppliers and engagers under pressure to retain their temporary labour workforce.

Whilst removing the responsibility of applying the IR35 legislation, these options come with their own responsibilities and risks. If income paid to contractors is taxed incorrectly in the eyes of HMRC, then someone will be held responsible, and this is where the main risk to businesses that engage contractors lies.

Without thorough due diligence of the supply chain or a robust compliance process for IR35 status determinations, engagers and agencies are leaving themselves extremely vulnerable to the risk of HMRC investigation and potential transfer of debt liability.

There are currently numerous stories in the marketplace concerning tax avoidance schemes, and most of these are associated with umbrella company models. For those engagers and agencies that have ushered contractors into umbrella solutions to avoid IR35, complicity is a real risk, and ignorance is no excuse.

Engagers that have made blanket statements or delegated status determinations to suppliers also risk falling foul of HMRC’s reasonable care requirements.

In both cases, the best form of protection is thorough due diligence and robust compliance. 

Effective bids and tenders

The recent introduction of the IR35 reforms will undoubtedly influence the focus of bids and tenders toward compliance and due diligence. The risks to engagers now associated with temporary labour usage should similarly shift the emphasis and weighting of assessment in the same direction.

Therefore, engagers and suppliers must understand the supply chain and implement processes that thoroughly check and vet suppliers and systems.

Engagers who have a thorough understanding of their supply chain should minimise the risk of engaging contractors and maintain a competitive advantage over less-prepared competitors.

Similarly, suppliers who can demonstrate robust compliance processes and thorough due diligence and compliance through their supply chain will undoubtedly see increased successes in bids and tender submissions.

Taking a robust, right-first-time approach to supply chain compliance will give peace of mind and confidence to all stakeholders in the process.

HMRC strongly recommends that engagers seek professional advice and assistance in effectively managing the temporary labour supply chain.

At Workr Group, our specialist team can offer impartial advice and assistance with all aspects of your supply chain, including our Umbrella solution – Workr Umbrella and our leading compliance service Workr Compliance.

For a free, no-obligation audit and assessment of your IR35 compliance process, you can speak directly with Andy Webster, Founder and Director, Workr Compliance, on 07827 810851 or at aw@workrgroup.com.

We’re almost three months in since the IR35 private sector reforms came into effect, and we’ve kept a close eye on what has happened in the marketplace.

As per one of our previous articles about HMRC’s “light touch” introduction, there has been little legislative or financial impact so far. We have yet to see or hear about how HMRC are policing the legislation post-reform.  

We will, no doubt, hear more on these issues over the coming months, and Workr Group will keep you fully updated as we hear more.

However, we are already seeing some impact from the introduction of the changes. Businesses that prepared a well-conducted, structured status determination process and followed reasonable care recommendations appear to have achieved business as usual without any major hold-ups.

For those that didn’t prepare (and in some cases, still haven’t) or made blanket or policy statement changes, the impact has been almost immediate.

IR35 – Predictions and warnings?

While most of the initial talk around the impact of the IR35 reforms was focused on the financial impact of making an incorrect determination, there were other predictions and warnings about the potential impact.

Administrative bottlenecks
The IR35 reforms stated that the engager needed to make a status determination for each contractor and take reasonable care in doing so. This change in responsibility created additional administration for the engager due to the initial assessment and the potential for challenges, and the added associated burden.

Due diligence
With the anticipated shift of volumes of contractors to umbrella solutions, warnings were made to engagers about ensuring that their supply chains were compliant and operating in line with UK tax and employment law.

Talent wars 
Probably the most significant risk of all to engagers was the loss of specialised and high-calibre talent due to “inside IR35” determinations. There were repeated warnings made about contractors migrating to companies offering “outside IR35” assignments and leaving gaping skills gaps behind them.

Three months in, and what are we seeing?

In the short time since the introduction of the reforms, we have already seen and heard of several cases where engagers that took a blanket statement approach and are now bogged down with a flood of challenges from contractors.

Failure to consider or respond to an SDS challenge will likely be regarded as a lack of reasonable care by HMRC and will significantly increase the risk of liability should HMRC find an assessment to be incorrect.

As anticipated, many contractors who received ‘inside IR35’ determinations have moved onto engagers payrolls as employees or transferred to umbrella company payroll models. This may seem a good solution for both engager and HMRC, however, market undertones suggest that there are still many illegal umbrella schemes around that could leave contractors, agencies and engagers in serious trouble if found to be complicit.

A lack of due diligence on the supply chain is highly likely to be frowned upon by HMRC, and once the reforms have bedded down, we suspect that the umbrella sector will come under renewed scrutiny from HMRC.

Most prominently, we have seen an immediate response in the migration of contractors.

For example, in the rail infrastructure sector, we have seen a large number of specialist contractors migrate from an engager that determined them to be inside IR35 directly to a competitor offering outside IR35 assignments.

The original engager took a blanket approach and ruled all of their PSC contractors inside IR35 and suffered an almost instant loss of a significant and skilled section of their workforce. They are now struggling to find the talent and expertise needed to replace those PSCs that moved on. This is having a significant impact on its ability to complete the work and projects on time and to standard.

We have also seen many examples of contractors who were given little choice but to transfer to employment contracts directly with engagers and are now resigning and moving to more lucrative permanent roles with competitors or alternatives.

In summary

Nobody wants to hear the phrase “I told you so”; however, there were plenty of warnings made before the IR35 reforms regarding the potential impact for engagers who chose to ignore the reforms or make blanket decisions.

The consequences of these actions are already being felt and are only likely to get worse as more contractors migrate to engagers offering a credible determination process and outside IR35 assignments.

Additionally, risks also remain for those engagers who chose to take a blanket approach. HMRC will undoubtedly conduct investigations into those sectors or businesses that promoted a shift to umbrella models.

It’s not too late to implement or change your process regarding IR35, and we encourage anyone responsible for IR35 compliance to ensure that your determination process is fit for purpose and meets HMRC’s reasonable care requirements.

To help you retain a competitive advantage and meet your reasonable care responsibilities concerning IR35 compliance, Workr Groups’ specialist team can provide impartial advice and support.

For a free, no-obligation audit and assessment of your IR35 compliance process, you can speak directly with Andy Webster, Founder and Director, Workr Compliance, on 07827 810851 or at aw@workrgroup.com.