Businesses should not delay focusing on how IR35 impacts their business to ensure they are compliant.
Last year, we asked 605 mid-sized businesses how confident they were on their compliance with IR35. Fewer than three quarters of respondents (68%) told us that they were confident on compliance. Only 25% responded that they were ‘very confident’.
The IR35 rules can be difficult to navigate and to apply practically. It’s therefore important that businesses, of all sizes, who are still unsure on compliance, act quickly to improve their understanding and avoid falling foul of the rules.
Businesses have had ample time to prepare, particularly given the previous 12-month delay to these reforms, but it’s clear that some mid-market organisations are still not confident in their approach.
To help you understand how IR35 compliance is actually playing out we asked experts across our business to share the lessons they've learnt while supporting clients to get their status checks right. This is what they told us.
Many businesses use HMRC’s CEST tool to determine employment status in the belief that it's a requirement of HMRC. This is not the case. The only requirement is to show that reasonable care is being taken to get your decisions right. If you're not confident in using CEST or it doesn’t provide an answer, there are other tools to use.
Often contractors are completing assessments themselves with few, or no checks being made by the engaging entity. This does not demonstrate reasonable care and is likely to potentially prejudice the employment status conclusions.
A recurring problem we've seen is wider internal stakeholders not being engaged in the process and not understanding the implications of their decisions. Training on the IR35 rules is a vital element of any off-payroll working system.
The ability to accurately and efficiently identify contractors can be a problem for some businesses, particularly those who do not have sufficient visibility of their labour supply chains. This also extends to self-employed engagements where the potentially significant historic employment tax liabilities these engagements may give rise to, which extend prior to the change in IR35 rules, are often not appreciated.
We've seen various schemes being offered to businesses to circumnavigate the IR35 requirements. Some of these arrangements attempt to utilise workers engaged overseas and may be advertised as being backed up by legal opinion. It's unlikely that such arrangements prevent a requirement to undertake status assessments and care must be taken if businesses want to remain compliant.
We've helped many businesses design and implement processes to deal effectively with the burden of complying effectively with off-payroll working legislation, including our contractor management tool: ESIP.
Here are our top tips for compliance:
For more information on how to be compliant and prepare for HMRC's compliance reviews into IR35, discover our employment status services.
