The extension of the off-payroll reforms into the private sector took effect in April 2021. Almost 12 months in, have engagers (end clients) got to grips with IR35 and their new responsibilities?

The IR35 reforms saw responsibility for defining whether an assignment is inside or outside of IR35 change from contractor to engager. The potential liability for incorrect or unpaid taxes and penalties came with that change. Recent case studies from the public sector have shown how substantial those taxes and penalties can be.

Therefore, it might be reasonable to think that engagers of personal service company (PSC) contractors would have addressed their IR35 responsibilities.

Since HMRC implemented the reforms, we’ve talked to engagers and contractors alike. Whilst some businesses appear to have met IR35 head-on and are prospering, we are still seeing and hearing of many worrying instances where the IR35 reforms have not been adequately addressed.

Are clients meeting their IR35 responsibilities?

The initial response to the IR35 reforms from many engagers was to take a blanket approach and define all contractors as inside IR35. This response stimulated a mass migration to PAYE solutions via an agency or umbrella company.

However, our previous blog, IR35 – The importance of supply chain compliance, highlighted the risks associated with such an approach.

Of more concern are the engagers we have heard about or spoken with who have not taken action.

We still hear of engagers relying on outsourced processes (along with responsibility and liability) as their defence. Others claim to have indemnity clauses passing on responsibility and liability for non-compliance.

In our experience of the initial enquiries conducted by HMRC, such approaches will not meet requirements.

According to HMRC, engagers must take reasonable care and responsibility for ensuring that status determinations are accurately assessed. Failure to demonstrate a robust and compliant process is unlikely to meet reasonable care requirements. Claiming diminished responsibility due to outsourcing is even less likely to appease HMRC.

Reliance on indemnity clauses is also an extremely risky tactic, with many such clauses being unenforceable according to previous case law.

Workr recommendations

Initial HMRC enquiries have focussed on engagers providing evidence of their IR35 status determination processes.

In our opinion, this is a clear indication of HMRC’s expectations concerning reasonable care requirements.

At a minimum, whether you have sought outsourced support or not, Workr recommends defining and documenting a process for each status determination you make. This process and each determination should be reviewed regularly to ensure fitness for purpose and accuracy.

We also recommend a detailed review of all contracts in the supply chain. Although your legal advisors may insist on inclusion, a robust and compliant process should remove the need to include indemnity clauses.

A review of contracts in the supply chain should ensure that clauses in all contracts down the supply chain are consistent and do not contradict each other. This is especially important with regard to key IR35 tests such as the right of substitution and mutuality of obligation.

If you have concerns about meeting the requirements of the off-payroll legislation or supply chain compliance, then Workr Compliance can help.

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.