Research has shown that 80% of UK businesses that use freelancers and contractors plan to review their IR35 workings, and get ahead of HMRC’s transitions to enforce the ‘off-payroll working rules’ introduced in April 2021.
In the last quarter of 2021, it was reported in research by Brookson Legal that 25% of medium to large businesses now responsible for the IR35 compliance of their contractors had already reviewed their solution.
HMRC is currently moving out of the education phase and into the enforcement phase regarding the new legislation.
We published an article in March 2021 in which we provided guidance on the changes to the reformed rules. Under the new reformed rules, the business is responsible for assessing the person’s employment status and whether or not they are inside or outside of IR35.
HMRC offers a tool – Check Employment Status for Tax (CEST) – to help clients determine an individual’s classification for IR35 purposes.
The use of CEST is not compulsory, and there may be instances in which it fails to produce a result. However, HMRC has said that it will stand by any results given by the tool, provided that the information entered is accurate and used according to HMRC guidance.
It is not an easy test to complete. However, as a business, you can use other means to determine individuals’ IR35 status.
For all organisations – whether they believe they are compliant or not – this is an essential opportunity to review their IR35 solution and ensure it not only meets HMRC’s threshold for reasonable care but, crucially, that it meets the needs of the business and supports its growth.
As HMRC’s soft-landing ends, research suggests that 90% of companies plan to extend their use of contractors over the next 12 months to support business growth.
29% of businesses surveyed said their approach to IR35 was an interim solution that would be replaced in the near future.
What are the consequences of IR35 and the reforms for your organisation?
Gone are the days firms could pick the phone up and organise a contractor/individual to do some work. There’s more central control involved.
Ask yourself – have you kept on top of changes in working practices so that you can pick up when a reassessment is appropriate?
If you fail to take reasonable care, you will be liable for the contractor’s tax and national insurance contributions.
HMRC also has the power to issue penalties, set a percentage of the tax and NIC liability, depending on whether the non-compliance was careless or deliberate.
Who is the project manager in your business who knows the working practices? What do your HR and the legal team think?
How do you retain valued individuals who fall within IR35 as the tax deductions to the individual are significant if they previously deemed themselves outside of IR35 or self-employment? The cost to their back pocket could result in a 20% to 30% reduction.
For assistance with your IR35 assessments and planning, don’t hesitate to contact IHRS.
Email HRhelp@ihrsolutions.co.uk or call 01604 709509.