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making accurate status determinations

Making accurate status determinations

By | ir35, Latest News, News

Within article 1 in our series of articles to help you check your process and management of IR35, we reported that both the DWP and HM Courts & Tribunals Service received large fines and penalties for issuing incorrect IR35 determinations.

It is understood that both organisations were utilising the gov.uk tool – CEST – for making the IR35 determinations, but were still unfortunately making incorrect determinations. Does this mean the CEST tool is not fit for purpose? Not necessarily. It could also be that the responses given by end users to the questions raised by the CEST tool were inaccurate. Remember it is important to respond to the questions on the basis of fact (what is actually happening) as opposed to aspiration. In article 3 of this series, we explore this further.

The Check Employment Status for Tax tool, better known as CEST, was introduced during the public sector reforms back in 2017. Those who have worked with CEST for many years will be well aware of the changes and updates it has undergone, as well as the large amounts of criticism it has received. So with this in mind why would we utilise CEST as the best approach for making an IR35 determination?

Well let’s be honest: (1) It’s built by HMRC so surely they should know their own legislation; (2) it states that HMRC will stand by this result should it be a true and accurate representation of the engagement; and (3) it’s free to use! So I think it’s fair to say that CEST is here to stay and will be adopted by many organisations.

Our approach is that we would recommend the use of CEST in making determinations, but it should not be solely relied upon. Having an accurate view of each contractor engagement to make the determination is vital. Secondly, when making the determination, ensure that when you take into account the contractual terms, you focus primarily on the ACTUAL working practices on the ground.

What about 3rd party status determinations and insurance practices? There are many organisations offering these types of advice and services and at Investigo, we have built up a number of relationships with those whose services we have assessed and believe to be fit for purpose. They can provide helpful insight and additional levels of understanding, informed advice and ensure a ‘belt-and-braces’ approach to IR35 determinations.

In our opinion, with the right process, governance and methodology, these organisations can be utilised as a sanity and reference check to help ensure your practices and decisions are aligned to the legislation and also to audit your determinations. It is certainly worth considering the services of such a third party for some of the more nuanced determinations. The insurance packages, I’m still to be convinced by. If an engagement is outside at the start, and it remains outside throughout its duration, then what do you need the insurance for? I understand the drive for this, especially from a risk perspective, knowing you have accurate determinations but also knowing you have insurance that covers you should HMRC disagree with a determination.

So in conclusion, use CEST, make sure that it’s an accurate reflection of both the contractual terms and working practices (and not what you think they could be!) and periodically sanity check a sample of your determinations with a reputable third party to ensure this represents your interpretation of the legislation. Oh, and don’t forget to store the evidence for when your favourite tax person comes knocking…

ir35

HMRC are coming. Are you ready?

By | ir35, Latest News, News

​In September HMRC started to contact organisations to begin to understand how end users are engaging with contractors and applying the off-payroll rules for IR35.

A template of the HMRC letter shows that they are looking to understand:

  • The process being adopted to hire contractors working through their own intermediaries –Personal Service Companies (PSCs) – either directly or via a labour provider such as an employment business;
  • The process used for determining the IR35 employment status of the working arrangements in question; and
  • The process for deciding if any outsourced services are indeed fully contracted out or are a supply of staffing services by another name.

Within their letter, HMRC then explain what they do once they have decided whether your systems and processes are suitable for the correct application of the rules and whether they believe more tax is owed / any interest is due on the tax owed.

It’s worth noting that HMRC launched IR35 with a ‘soft-landing,’ stating that any fines would not be applied within the first 12 months of the new legislation being implemented. However, it’s also worth noting HMRC still expects the rules to be followed and the correct tax to be accounted for. And with six months already lapsed, the 12-month window is quickly evaporating. Therefore our advice to end-users is to double check your own processes are fit for purpose and act now to make sure those processes are properly documented. Your records should provide a clear audit trail of those processes and the decisions made in relation to IR35 so that you are prepared should one of these letters land on your doormat.

Getting prepared

We have extensive experience of implementing IR35 management frameworks that allow you to make individual, case by case determinations for all contractor engagements. The silver bullet for IR35 isn’t SOW, it’s knowing IR35 and managing a framework for true and accurate determinations to be made for all contingent worker engagements where an IR35 determination is appropriate.

Ensure you have:

  • An approved methodology for making the IR35 determinations where appropriate. There’s a lot of criticism of the CEST tool (Check employment status for tax – GOV.UK (www.gov.uk)) and in our opinion it should be used as a guide to help build the evidence of a determination but should not be solely relied upon;
  • A solid and robust process to assess, review and govern all contingent workforce engagements on an individual basis;
  • Created a working practices policy to help the teams on the ground understand how to work with outside IR35 contractors. It’s important to remember that in IR35, actual working practices supersede contractual terms;
  • Developed individual services descriptions for every engagement where the working practices fall outside IR35 – and make sure you have a process to keep these under review so that they remain relevant at any subsequent extension point. Don’t forget about a change request process should the deliverables need to change mid-contract due to business demand;
  • Terms of engagement for both ‘outside’ and ‘inside’ arrangements – whether directly with contractors or with service or labour providers – getting the right contractor on the right contract. e.g. PAYE, umbrella, PSC;
  • Education and training for all hiring managers – it’s really important to keep the knowledge and education fresh for all. It’s easy to slip back into poor practices;
  • Evidence of all IR35 determinations made – having all the contracts, status determinations and supporting evidence stored in one place which can be audited and assessed will certainly be a benefit;
  • Finally – seek independent advice. We would recommend you build your own capability but getting this verified with a third party will help to ensure you keep up to date with the changing legislation, especially as case law is released and introduced.

If you are concerned with the methods and processes you use to govern and manage your contingent workforce then feel free to contact us.

Our next article will be based on making the status determination and whether we can be safe relying on a CEST determination.

ir35

IR35: was it a storm in a teacup…or is the storm still coming?

By | ir35, Latest News, News

​Six months ago IR35 reform was made across the private sector. And similar to GDPR in February and March this year we had a lot of noise with agencies, end users and contractors all working hard to be compliant for the 5th April 2021 deadline. While this all seemed to go quiet over the summer, those paying closer attention to the IR35 world would have found that quite a lot has happened.

Six-month timeline:

So what does this tell us?

IR35 is a very technical subject with lots of intricacy and details. Understanding all of the case law and interpretations of legislation requires a doctorate in itself, so it’s easy to understand why people may shy away or delegate decisions.

However, with the market BOOMING – APSCo reporting a 17% month-on-month rise in contractor recruitment in September – are end-client organisations getting the best available skills? Is IR35 still hampering your efforts? Are you putting yourself at even more risk by heading into an unsuitable SOW arrangement for resource? With the rush to making determinations have many organisations lost sight, or even control of their IR35 process as it’s transitioned into BAU?

​At Investigo Group we want to help our clients get this right. Support our clients with making the right and most compliant decision.

So over the coming weeks we’re releasing a series of articles designed for talent communities to help them understand, demystify and sanity check their process and management adoption for IR35.

Watch this space for more to come but please contact us should you be concerned about your IR35 process!

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