IR35 changes were laid out in mid-February, as it was revealed that HMRC believed off-payroll workers should be treated as full-time employees. This means that from April 6, medium and large businesses will be responsible for setting the tax status of contractors they hire, mirroring a system that has been in place in the public sector since 2017.
On top of this, changing ones mindset could have surprising benefits, as Seb continued: “Whether it’s subcontracting out work, having multiple clients at once and even holding business insurance, genuine contractors should think, act and operate as genuine businesses.
“The clearer it is that a contractor is a true business and in no way a ‘disguised employee’, the better placed they are to be assessed as outside IR35.”
Seb moved on by examining what larger organisations should do to ensure affected workers get by with few difficulties.
Steps businesses should take to ensure IR35 compliance
For businesses the main elements to be aware of obviously revolve around knowing how to treat the contractors they’re working with, with this including determining the IR35 status of contractors (existing and newly engaged) with ‘reasonable care’ and issue Statement Determination Statements (SDS).
Seb explained: “All contractors – whether existing or newly engaged – need to have had their IR35 status reviewed fairly by their client by April 6.
“In addition, businesses must issue Status Determination Statements, which explain the outcome of the assessment and the reasons behind this IR35 decision.
“For contractors deemed inside IR35 following a fair review of status, businesses must have compliant payroll processes in place to deduct the right amount of tax from this engagement and pay it to HMRC. Failure to do so will result in non-compliance.”
Seb also urged businesses to consider IR35 insurance and to, controversially, not rely on HMRC’s own IR35 tools.
HMRC created an online tool in 2017 called CEST (Check employment status for tax) which allows users to find out if they, or a worker on a specific engagement, should be classed as employed or self-employed for tax purposes.
However, Seb was particularly critical of this tool: “Frankly, HMRC’s IR35 tool, CEST, is not fit for purpose and poses a risk to the IR35 compliance of businesses.
“Despite what the taxman says, the tool isn’t aligned to IR35 case law. It also overlooks crucial aspects of the legislation and there’s no guarantee that HMRC will stand by a result delivered by its very own tool.
“My advice to businesses is not to rely on CEST when assessing contractors. It’s not mandatory, independent IR35 status reviews are allowed and, in reality, these offer a far more accurate assessment of IR35 position.”
It should be noted the CEST tool undergoes continuous improvements and testing and in response to Seb’s claims, a HMRC spokesperson made the following comment: “The CEST tool was introduced in 2017 to help individuals and organisations decide whether a worker should be treated as employed or self-employed for tax purposes.
“It was enhanced in 2019 after we worked with more than 300 stakeholders to make the tool clearer, reduce user error, and consider more detailed information.
“The tool was rigorously tested against case law and settled cases by officials and external experts and HMRC stand behind every result it gives, provided the information is accurate and it is used in accordance with our guidance.”
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