When IR35 legislation was applied to the private sector in April 2021 HMRC promised a 'soft landing' for the first year. But, as recent events show, companies need to think carefully about the tools they use. Julia Rockcliffe and Matt Parfitt take a closer look.
Even with the initial leniency, HMRC did warn that businesses performing incorrect IR35 assessments will be liable for the tax - but, the implementation of IR35 was accompanied by widespread concern about the accuracy of results from the HMRC CEST tool. Recent disclosures suggest that this scepticism may be warranted.
IR35 was rolled out for the public sector in 2017 and HMRC revealed that multi-million pound tax liabilities have been levied from three high-profile government organisations: the Department of Work and Pensions (£87.9 million); the Home Office (£29.5 million), and HM Courts and Tribunal Service (£12.5 million).
These liabilities are all due to the organisations getting historical employment status assessments for their off-payroll workers wrong. They relied on HMRC’s CEST tool to do their assessments.
This is a red flag for private sector organisations who haven’t yet got a reliable process in place and depend on the CEST tool for IR35 compliance checks. HMRC are clearly prioritising and mobilising their enforcement activities around compliance.
Our team of employment tax specialists are leading the way on improving accuracy in IR35 compliance checks by developing our own IR35 status tool: the Employment Status Intelligence Platform (ESIP).
ESIP is more than just an employment status tool. Its ongoing monitoring facility ensures that employers continually maintain correct IR35 compliance checks.
Completed by employers responsible for getting this right, not off payroll workers
Considers the seven key employment status indicators, including Mutuality of Obligation (MOO)
Considers the weightings towards both an employed and a self-employed status and provides a risk of challenge rating
Provides a result for every completed assessment — unlike the CEST tool, which leaves c.20% undetermined
Assessments can be part-completed, saved, and recommenced at a later stage as required
Allows users to record comments between those reviewing assessments and those that complete the questionnaire
Documentation (ie contracts and other supporting evidence) can be uploaded
Notifies users when re-assessments are due
Employment status reports meet the statutory requirements for a status determination statement (SDS)
Includes contractor appeals management functionality
Supports the recruitment of contractors through the preliminary assessments' functionality for roles prior to the individual being recruited
We can help you get IR35 right and avoid accruing massive tax liabilities, which could have material impact on your organisation further down the line.
100 businesses use ESIP, including over 1800 users. The tool has already reliably completed 8000 employment status assessments. As HMRC's expectations of accuracy in IR35 compliance checks are only going to rise, we're supporting our clients to get their assessments right.
To join the organisations already experiencing the benefits of the ESIP IR35 tool, book a demo and get in touch with one of our employment tax specialists.