IR35 investigations – what you need to know

The off-payroll reforms have received a great deal of air time over the past 18 months, and you’d be forgiven for growing tired of all that IR35 talk. Add to this all of the other distractions such as Christmas, Omicron and party politics (literally), and it’s easy to understand why there has been a lull in all things off-payroll reform.

However, our advice to anyone involved with temporary labour, IR35, and compliance is don’t get complacent.

Whilst we have all been taking a festive break or trying to avoid Omicron, working from home or returning to the office, HMRC has been diligently working away in the background.

Whether it’s been declaring the results of investigations into public sector bodies (see our previous article) or kicking off investigations into private sector engagers, IR35 certainly hasn’t gone away.

IR35 investigations, the lull before the storm

Working closely with several high volume contract end-users throughout 2021, we have gained first-hand experience of HMRC’s commitment to this legislation.

As of 06/04/21, if you haven’t been managing your PSC’s and ensuring that they have a clearly defined status determination, then our advice would be to buckle up.

It’s taken HMRC almost four years to conclude some of their investigations into public sector organisations. The results, however, published over the last six months or so, are enough to make anyone sit up and take note. With a combined tax bill of approximately £250M, the recent publication of these results is surely not down to coincidence.

However, it’s unlikely that it’s going to take HMRC quite as long to get its teeth into the private sector.

Indeed, investigations are already well underway, with HMRC sending RFI letters to engagers from several industries. In many cases, HMRC has followed this up with in-depth and challenging meetings and interviews – we’ve supported clients that have had as many as three already.

So, whilst there may well have been a lull and some IR35 lethargy in recent months, now is a great time to refocus and ensure that your IR35 processes are fit for purpose and compliant.

Looking beyond the SDS 

The best piece of advice that we can offer based on our experiences with HMRC so far is to think well beyond the SDS (Status determination statement).

Initial RFIs focussed on processes, documentation and systems used to make status determinations, including whether the government’s own CEST tool had been used.

Additionally, questioning around alternative determination systems has been far more detailed, including the weighting used for individual questions.

As anticipated, HMRC has looked at the content of contracts down the supply chain. In particular, looking at the consistency of contract terms and the application of these terms in the working environment.

This questioning has also expanded beyond the engager to all of the stakeholders in the process and, we would argue, outside the legislation’s scope. Irrespective, the direction and focus of these initial enquiries demonstrate that HMRC is looking more broadly and deeply than some would have anticipated.

In our opinion, end users will likely have to demonstrate their responsibility for their supply chain. In other words, it won’t be enough just to say we didn’t know.

End users will be well advised to ensure that they understand and control what happens beyond their boundaries when it comes to contractors. 

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.