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As part of our Ask the Experts IR35 question and answer series, we spoke to Sue Ollerenshaw, Director at Efficient Employment Tax Solutions Limited, about how end-hirers can go about making Status Determination Statements efficiently following the IR35 reform on 6th April 2021.
Sue: First, you need to identify all the workers that may potentially be caught out by the off-payroll working rules, that will include both those engaged directly by an end hirer and through agency one and indeed any further agencies down supply chain.
The second thing that you need to consider is information gathering. This is about understanding who you need to speak to in order to obtain the necessary information and to ensure that you are not looking just at contracts, but what happens on the ground on a day-to-day basis. The people you might need to consider involving include finance, HR, procurement, and anybody that is working alongside that particular consultant and the consultants themselves.
It is useful to involve the consultant because it can prevent problems further down the line in instances where the consultant might try to use the status disagreement process. If they have bought into the information and gathering exercise, they would need to provide evidence showing that the information they provided was incorrect.
The next process would be looking at whether it would be possible to put workers into groups. Although you are not allowed to make blanket decisions, if you have groups of workers doing the same task and they are all engaged under the same terms and conditions, you can put them into those groups.
It is important to take advice and it is also important to pick the right tools. If you have high volumes of consultants, it is not going to be possible to deal with it on a one-to-one using open questions, which would be the preferred method of gathering information. It is also important that anybody involved in the process has the appropriate training and understands what happens on the ground on a day-to-day basis.
Sue: You need to accurately apply the case law tests. This is a complex and grey area, where there have been many occasions when not even the judges have agreed on the verdict. The tool you use to make the assessments must be accurately completed and it is recommended that you take advice from a qualified professional advisor. Be wary of people in the market that will falsely claim to be IR35 advisors.
The person that is responsible for making the status determination should have a good understanding of both the work to be undertaken and the employment status tests, including the various weights that are given to them.
It is important to check regularly for any changes to working practices. Review your processes and check whether you need to issue a new status determination statement. If there has been a material change in either the terms or the working practices and if you as a client end hirer have subcontracted this process out, you still remain responsible. Therefore, you need to review to ensure whoever you subcontracted it to, is carrying out the correct processes.
You also need to be aware of the serious consequences of using solutions that are high risk and new to the market. The first thing you need to understand is the periods over which the revenue can recover tax and National Insurance. For this, there are two different sets of rules. The normal tax recovery period is four years if you can show you have taken reasonable care. If the revenue considers that your behaviour has been careless, those four years increase to six years. If the revenue believes that your behaviour is deliberate, that increases to 20 years for tax. It is assessed on a yearly basis and those dates apply from the 31st January following the tax year end.
National Insurance is covered by the statute of limitations, which means that the revenue can recover up to six years, which is not collected by tax year, but in relation to months. Whereas with tax, a whole year falls out of date if there is a missed deadline, for National Insurance you are only losing a month at a time.
The revenue has said that they will take a light touch in the first year of IR35 by not imposing penalties. This does not mean that they will not impose any underpayments or seek any underpayments of PAYE and National Insurance. Equally, they will not agree to waive the penalties if they believe that there has been deliberate avoidance.
You also need to be aware of the Managed Service Company legislation, which involves the transfer of debt directly to directors. There are also rules for transferring liability to directors where there is either culpability or a history of phoenixism.
We have the Criminal Finances Act: a failure to prevent tax evasion. This could apply if you were involved in using one of the mini umbrella solutions that the revenue has highlighted and is considered to be fraudulent.
Don't be unprepared for the IR35 reform. If you need some help navigating through 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 reform, get in touch with the team today.
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.