Tax  

IR35 reform is here: are you prepared?

  • Describe the steps needed to prepare for IR35 reform
  • Explain what it means to be 'inside IR35'
  • Identify when IR35 reform takes effect
CPD
Approx.30min

The threat of being held liable for incorrect IR35 decisions (along with the perceived burden of carrying them out) has led some businesses to ban contractors altogether.

However, insisting that all contractors work via umbrella companies or become employees - which means the IR35 rules are no longer a consideration - are not the right ways to go about the reform. 

They will see businesses needlessly absorb the costs involved with hiring employees. This is unnecessary given that in our experience 91 per cent of thousands of contractors Qdos have assessed on behalf of businesses - following a rigorous and independent IR35 status review - belong outside IR35 in our expert opinion. 

Key steps

So if imposing blanket contractor bans and, in and worse, even non-compliant cases, deeming all contractors inside IR35 irrespective of status is not the right thing to do, what is? 

And how can businesses compliantly implement the changes, making sure they mitigate the risk they will soon carry while retaining the skills and flexibility of contractors? 

I’ll run through the key steps firms should take now.

Assess IR35 status with reasonable care

When the changes land on 6 April, all contractors - whether existing or newly engaged - must have had their IR35 status determined with ‘reasonable care’. 

HMRC’s definition of ‘reasonable care’ is still, despite the release of detailed guidance, open to  interpretation. But generally speaking it means businesses need to carefully consider the specific factors which lead to an IR35 decision. In other words, they cannot simply place all contractors inside IR35 - or outside IR35 for that matter - without having examined the details of the engagement. 

There are a number of ways businesses can ensure ‘reasonable care’ - whether by engaging a third party specialist to assess the status of contractors or using HMRC’s Check Employment Status for Tax tool (CEST) - although I would strongly advise against relying on the government’s technology.

Despite what HMRC say, CEST is not completely aligned with IR35 case law, overlooks key aspects of the IR35 legislation, has been dismissed in court and cannot provide an answer nearly 20 per cent of the time. For these reasons (and there are plenty more), relying solely on HMRC’s flawed tool endangers IR35 compliance, believe it or not. 

Fortunately, it is not mandatory, which is why I recommend that companies steer clear of it entirely. 

Issue Status Determination Statements (SDS)

Having assessed IR35 status, end clients must then inform contractors of their position via a Status Determination Statement (SDS). This can be an email or document outlining the deemed IR35 status and the reasons for this particular decision. It should be sent to the contractor and the second party in the supply chain, which is usually the recruitment agency.