IR35: Now is the right time to choose your approach!
The blanket approach isn’t a viable option, so how are you planning for IR35?
Changes to the IR35 Legislation have been waiting in the wings for the Private Sector for a couple of years now. In July the much awaited draft legislation was published. Not surprisingly there is no sign of further delays or U-turns and there is now consensus that the only thing for Private Sector employers to do make preparation a priority.
The first point to make is that the draft legislation is clear that responsibility sits with end-clients. They make the determinations, they inform the workers and the supply chain and they will receive any appeals.
For a number of reasons, most often resourcing issues, time constraints or fear,I’m still seeing clients talking about “blanket” or “role based” determinations. Perhaps more worryingly I am experiencing clients not engaging with the impending changes at all.
It has been evident since the 2018 autumn budget that the Private sector will need to get their house in order. Not preparing will not be an acceptable excuse for failing to take a robust and thought out approach.
Are blanket IR35 assessments really such a bad idea?
I honestly believe that the blanket approach is wrong for everyone, whether you intend to rule inside or outside of IR35. The consequences may vary but both will have potentially costly outcomes.
Where blanket decisions were used in 2017, some clients felt (to their cost) that automatically ruling inside IR35 was the “least risky” option. You need to be mindful though that this approach makes it more difficult to hire contractors for roles that should (or could be) outside of IR35 and so more difficult to retain skills for the duration of projects. Loss of these skills endangers business critical initiatives. The only way to really negate this effect is to increase rates, in effect funding the difference, a costly exercise.
Of course a blanket ruling of outside IR35 (or listening to those siren calls that suggest a role can be ‘guaranteed’ outside) just put the liability for all the back taxes onto the client.
I should also be clear – it will be very difficult to argue that blanket IR35 decisions constitute the “reasonable care” that the draft legislation requires of a client. It clearly states that a status determination is not valid unless “the client has taken reasonable care in coming to the conclusion mentioned in it”. Failure to adhere to this requirement may mean that the tax risk passes to the end client.
Blanket decisions also prevent the client from ‘feeding in’ the changes role-by-role to ease the admin burden.
The IT sector also offers unique challenges …
An estimated 600,000 vacancies in digital technology are costing the country £63 billion a year, according to information provided by techUK in their 2018 report on skills shortage published by the Edge Foundation. Jane Gratton, Head of Business Environment and Skills Policy at the BCC said:
“The findings of the survey indicate persistent and pervasive skills shortages in the economy. Firms across all sizes, sectors and regions are struggling to find the skills and labour they need to fill job vacancies”.
Ruling everyone inside IR35 will unnecessarily make you a less attractive option for the most difficult to source technical skills. Is this really an option for your business?
The government agrees … I think
The need to assess on an individual basis has been re-enforced by the most recent announcements. End-clients will be expected to provide a “status determination statement” to both the contractor and the party paying the contractor. It must include both a decision and the reasoning behind the decision.
Failure to provide this statement will be seen as a failure by the client to fulfil their obligations, therefore transferring liability. Every business will need to review each contractor on an individual basis in order to comply fully with the legislation.
The advantages of HMRC’s CEST tool are that it is free, easy to complete and in most cases will give end-clients the correct determination for the role. Also of course HMRC have said that they will stand by determinations it provides so long as reasonable care is honestly used.
What is the best strategy?
My advice is to plan now and take the most comprehensive approach.
It’s much better to complete individual IR35 assessments for each contractor, and each new contractor and achieve a blended approach where some roles are inside IR35 and some genuinely outside.
I understand that this is a daunting prospect for many which is why The Adecco Group have created modular IR35 Consulting Services which are designed to help you go through the whole process from understanding the legislation at Board level, mapping your contingent workforce through to educating the business.
The “Preliminary Assessment module” is a great first step, our specialists run though the following and identify the best next steps:
- Impacts to organisation in April 2020
- Lessons learnt from Pub. Sec.
- Adecco IR35 consultancy solution
- Our approaches & why
- Client involvement & commitment
- Stages we go through & outputs
- Benefits to be recognised
The Adecco Group also offer a comprehensive range of delivery solutions (including extensive project-based outcome solutions) to help our clients get the best they can in the new landscape.
Most importantly The Adecco Group can help you identify where minor changes in behaviour or approach that clients can easily adopt that can very simply move roles from inside to outside IR35. In September and October we are running events in:
These are opportunities to hear from our specialists and ask them your questions directly!
The key message is if you haven’t started planning for IR35 it is imperative that you do now.Interested in finding out more about our services? Please message me.
Author: Nicole Mikulla
Current: Enterprise Client Manager UK: IT & Engineering Adecco Group