Tackling the IR35 review quandary -- an attempt
To have an IR35 review, or not to have an IR35 review? That is the question, it seems, after ContractorUK last month published two contributor articles appearing to put across opposing viewpoints on what best practice entails, in light of the April 6th off-payroll rules, writes Roger Sinclair, legal consultant at egos.
The first article spoke of a “fear” that PSCs who receive an ‘outside’ IR35 decision from a private sector specialist will have it, in effect, disregarded, because the client will overrule it with whatever the IR35 digital tool -- the Employment Status Service -- churns out. Published on the very same day, the second article all but recommends an IR35 review to get an “informed decision” able to generate “trust.”
Believe it or not, closer inspection reveals that the two standpoints don’t necessarily conflict. It is the case that end-clients may disregard the outcome of private reviews, once the April 6th rules take effect. It is also the case that an IR35 review will be one possible way to persuade the end-user responsible for assessing your status that you are outside the legislation. And let’s not overlook that fact that an ‘outside IR35’ decision may be less costly for a budget-conscious public sector client, who would otherwise have to fund both Employer's NIC and the Apprenticeship Levy. The second article was also extolling the virtues of an IR35 reviews to end-users; the first article wasn’t.
Who considers what, when
But let’s consider the position afresh. It seems to me that the public sector end-client will be required after April 5th to decide whether or not the rules apply to a PSC, and must communicate that decision.
Next, the person paying the PSC is accountable for dedicating tax appropriately -- i.e. in accordance with the new legislation -- which is not the same thing as being in accordance with the end-client’s decision.
But it seems to me that, particularly where the person paying the PSC is an agency, that person is, in most cases, likely to choose to ‘play safe,’ and hide behind the end-client’s decision.
Playing it safe (continued)
Now, some persons paying the PSC may take the view that they can safely rely on a third-party opinion and disregard the end-client’s view; if they do, it will be at their risk -- if they get it wrong, it will be they who are liable -- not the public sector end-client, nor the PSC. Is it likely that many will take this approach? Probably not. What’s in it for them, apart from significant risk, arising from factors outside their control? Probably not much.
So at the time writing, and up until April 5th 2017, the old IR35 rules apply in the public sector, and so the PSC needs to make its own assessment -- for which it may well be worthwhile getting a third-party, IR35 review.
Exert your influence, because HMRC will be exerting theirs
To my mind, a more significant point is that IR35 (both old and new) depends on a case-by-case assessment, contract-by-contract. That means the big question of ‘inside’ or ‘outside’ the legislation is open to being influenced by factors within the contractor’s own control and knowledge, such as the characteristics that may (or may not) indicate a contractor and their company are genuinely ‘in business on their own account.’
I have so far heard nothing about how (or indeed if) the proposed but non-mandatory digital tool, the ESS, will take such material factors as these into account; and if it is used and a decision made by the client, before a specific contractor is selected and offered the contract, clearly such factors cannot be taken into account. There is a limit to which a digital tool which disregards such characteristics can be expected to create results that are not prone to error -- all such errors being, perhaps predictably, one way and in HMRC’s favour.