IR35 consequences and risks for hirers

As part of our ‘Ask the Experts’ IR35 question and answer series, we spoke to Paul Chamberlain, Head of Employment at JMW Solicitors and Sue Ollerenshaw, Director at Efficient Employment Tax Solutions Limited. We asked them about what consequences and risks hirers may face following the IR35 reforms, which came into effect on 6th April 2021.

Search: What are the main consequences for hirers under the new IR35 legislation?

Paul: The difference to IR35 legislation is that the responsibility for making a status determination, in other words, whether or not a limited company sits inside or outside of IR35, has moved from the limited company itself to the end user hirer, i.e., the user of that limited company's services.

If the end user hirer gets that status determination wrong or doesn't exercise reasonable care and skill in making the determination, then the responsibility for any unpaid tax and National Insurance contributions will sit squarely with the end user client rather than with the limited company.

What are the risks to the hirer under the new IR35 legislation?

Sue: If the hirer doesn't take reasonable care in making a status determination, they become responsible for the PAYE and National Insurance.

The second risk is not passing the status determination statement on to a recruitment agency which is a qualifying fee payer. Care needs to be taken about using offshore intermediaries in the supply chain. The obligation will go up the supply chain if the fee payer doesn't or can't pay its liabilities.

Initially, this liability would transfer up to agency one but if agency one has got insufficient assets, then the liability passes to the engager. Larger engagers will also have the responsibility under the senior accounting officer rules. That’s the personal responsibility of the appointed officer to make a statement every 12 months that they have got the correct procedures in place to make sure they're complying with all of their tax obligations.

The final risk hirers would need to consider is reputational risk. It’s very important that end hirers make sure that they're choosing the right partners and they are fully aware of what is happening all the way down the supply chain.

About our experts

Paul Chamberlain

Paul Chamberlain is Head of Employment at JMW Solicitors. He has nationally-recognised expertise in the law relating to the recruitment industry, advising and providing training on employment status issues, the Agency Workers’ Regulations, GLAA matters, the Working Time Regulations and industry-specific regulatory compliance matters.

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Sue Ollerenshaw

With over 30 years experience, Sue Ollerenshaw is a Tax Specialist and the Director at Efficient Employment Tax Solutions Limited. Sue advises all types of clients on how to comply with PAYE, NIC, Employment Income Tax and Construction Industry Scheme (CIS) reporting obligations. Previously working as an Inland Revenue PAYE Auditor and then Head of Employer Tax Consultancy for a Group A accountancy firm, she specialises in employment status and the interaction of IR35.

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Looking for more guidance on the IR35 reforms?

If you need some help navigating the IR35 changes, then we’re here to help. Whether you’re exploring the best ways to manage your contractors or need support with your people strategy following the IR35 reforms, get in touch with the team today.

You can also check out our IR35 hub for more information and helpful resources.