In this 2nd article, in our six part Employer Tax Year-End Update series, we highlight some of the key issues that businesses have faced so far since the IR35 reforms were introduced.
With HMRC’s ‘soft landing’ on IR35 coming to an end, the need to understand and operate these rules correctly is more important than ever.
Supply chain issues
Businesses must fully understand their labour supply chains in order to identify where personal service companies (PSCs) and other intermediaries are being used.
We have seen several instances where the status determination has been carried out at the wrong point in the chain, particularly where there are other parties (eg agencies) between the end engager and the PSC. Unfortunately, this can result in the engager becoming liable for any PAYE and NIC due, if the status determination has been carried out incorrectly.
It is therefore vital that each party in the supply chain understands who has responsibility for making the status determinations, how to do them, who to pass them along to, and ultimately who is responsible for operating PAYE and NIC, if applicable.
We’d also strongly recommend that contracts between parties clearly stipulate the steps in the supply chain, and who has responsibility for assessing the status of workers. Appropriate indemnities should also be included.
The status assessments
Carrying out the status determination itself can be a challenge for many businesses, particularly when using the HMRC ‘Check Employment Status for Tax’ (“CEST”) tool.
In its’ recent review, the House of Lords Finance Bill Sub Committee addressed ongoing concerns around the accuracy of CEST results, highlighting the fact CEST still fails to consider mutuality of obligation, which is considered a key test in assessing employment status. It is also thought that around a fifth of all CEST assessments continues to produce an ‘unable to determine’ result.
Using our expertise and experience, A&M has developed our TEST (“Test Employment Status Tools”) approach to status assessments. With TEST, we can assist with IR35 compliance in a fair, cost-effective and time-efficient way. TEST works with engagers and contractors so that, crucially, both have their say in the status outcome.
Increased costs
The way in which businesses engage with and pay certain contractors has had to change, often resulting in increased costs, for example, increased fees being charged by agencies or a direct increase in Employer’s NIC charges, where IR35 applies. In addition, there is a legal, financial and administrative burden on businesses, at a time when the UK economy could do without additional overhead spending.
Appeals and disagreements
We have seen many instances of contractors pushing back on status assessments where they have been found inside IR35, or simply refusing to work with an engager. Processes need to be robust to withstand any disagreements or queries from contractors. A formal appeals process also needs to be in place, in line with legislation.
How can we help?
A&M Tax can assist clients with all aspects of their IR35 responsibilities. Our team of very experienced professionals has expertise across tax, HR and finance roles, including in-house roles and status specialist roles within HMRC. Please contact your usual A&M point of contact or Louise Jenkins, Tracey Norton, Clinton Knox, Linda Cameron or Monica Houston.