IR35 Assessment: Dos and Don’ts

What to do (and not do) when you’re reviewing your contractor estate for the IR35 tax reform.

IR35 reforms were supposed to be implemented in April 2020, but where rightfully postponed until 2021 due to unpreparedness resulting from the COVID-19 pandemic, as well as flaws with government advice and the CEST tool. What quickly became apparent when we initially started talking to businesses, was that business leaders were uncertain how exactly to assess their contractor estate when given such arbitrary factors to use.

To help we hosted a roundtable with one of our strategic legal partners who specialise in IR35 to provide useful insights into what businesses need to do to prepare. As we approach the new deadline of April 2021, I thought now would be a good time to revisit the assessment criteria and how correctly determine contractors from employees.

IR35: A recap

IR35 stipulates that if a contractor acts and is treated like an employee, then they should be taxed as an employee. That isn't changing. There will however be a shift in responsibility and liability. As of April 2021, medium and large corporate end users who become responsible for ruling on IR35 and correctly operating PAYE and NIC. 

CEST: Check Employment Status for Tax Tool

In order to help businesses, the government provided the CEST tool for businesses to use. The idea behind this was that businesses could use the tool to determine the tax status of their employees and to see if they fit “inside IR35” (employee for tax purposes) or “outside IR35” (contractor for tax purposes). On paper this sounds great. But in reality, the tool was flawed. Amongst many other issues:

·      Mutuality of obligation (MOO), a key determiner of IR35 status is not considered

·      Assessments are based on 16 questions, which oversimplifies the complexity of IR35

·      It wasn’t assessed under Government Digital Services (GDS) standards

Despite using the CEST tool, NHS Digital were fined ￡4.3m for non-compliance. When in court and they used their CEST result as evidence, it was discounted and the responsibility for the non-compliance still sat with NHS Digital. Therefore, when determining IR35 and tax status for your contractor estate, you must use due diligence, care, and be thorough. The CEST tool is not enough.

Assessment Criteria

The three main areas are mutuality of obligation, control, and substitution. However, financial risk and distinction are also very important. These are all methods of identifying whether an individual falls “Inside IR35” or “Outside IR35”. Find out more in our full assessment guide or contact me for the printable PDF version.

Important dos and don’ts

Every employer must demonstrate reasonable care when assessing the IR35 status of their contractor estate. Failure to do so could warrant HMRC investigation, meaning you should:

• Avoid blanket bans and assessments
• Review every role and every contractor individually and reassess every time the role or contractor changes or a contract is extended
• Seek independent legal advice from a FCSA approved IR35 specialist
• Provide a thorough and detailed SDS report for every contractor and every role
• Communicate decisions to the supply chain and give the contractor the right to appeal your decision

Maxwell Bond - Stress Free & Risk Free IR35 Solutions for You

Maxwell Bond are fully informed and prepared for IR35 contractor reforms. Alongside our strategic legal partners, we have a 100% success rate and a flawless track record. We can partner with you to:

• Complete contractor estate audit and management
• Provide provisions to help complete SDS for each contractor
• Insure and indemnify each individual
• Ensure full supply chain compliance
• Remove legal and financial risk and so much more

Find out why well known businesses are partnering with us to protect their business.

Get in touch with Maxwell Bond asap to help put in place a step by step process to ensure full compliance, whilst we take on all the financial and legal risk as well as the administrative burden.

Contact me today to download your free copy.