IR35 decision process dominates advisers’ concerns, as new off-payroll rules bed in

The status determination process is dominating the concerns of contractors and IR35 advisers, now that the reformed legislation of April 6th is bedding in.

Asked for its advice for a ContractorUK reader stuck with a SDS outcome his PSC disagrees with, an employment law firm declined, on the basis of too many unknowns and sensitivities.

The firm would only say that rather than using a client-led status disagreement process, the first response to a ‘wrong’ IR35 decision was simply to talk it through with the client.  

'Too late to go back'

Potentially signalling fatigue on the law firm’s part (given that the new IR35 is only a few weeks’ old), its recommendation to chat rather than use a channel enshrined in legislation comes after PSCs were said to be singlehandedly battling clients on status.

“While it is too late to go back on [these now-in force IR35] changes,” began FreeAgent CEO Ed Molyneux, “it is imperative that we properly support these important workers….rather than leaving them to struggle on their own”.

And it is very much a ‘struggle’ where individuals are up against HR teams and legal departments, indicates Tom Wallace, head of investigations at HMRC dispute advisory WTT Consulting.

'Contractors left asking the same person, the same question, again'

“[Contractors] can dispute the determination, but with no set process in law [they] are left simply asking the same person the same question again,” he said.

“[Contractors] can walk. Some will, but it will be difficult for many given the current [covid-19] situation.

“I do wonder if there is a legal claim against the end-client for the additional taxation costs that their lack of ‘reasonable care’ [might have] caused,” the former tax inspector said, referring to blanket decisions.

'Clients looking to cut corners'

Similarly suspicious that not all medium-sized and large end-users in the country are now testing IR35 status fairly is Kingsbridge’s Ryan Dawson.

“Businesses globally have spent months and years preparing for this moment,” he said on the afternoon of April 6th.

“We can't ignore however that there are still clients who are looking to cut corners when assessing status; clients using the CEST tool despite the warnings, or clients that are refusing to deal with IR35 entirely.”

'End-users backtracking'

In a statement yesterday to ContractorUK, recruitment agency director Matt Collingwood agreed that “vast amounts of time and effort” have gone into educating end-users about IR35.

“Hard work [over the last 18 months] culminated in 85% of our clients being open to using umbrellas and PSCs before the reform…[but just before it applied] 15% of our clients made it clear that we should not introduce PCS contractors to them,” the director said.

“But in the two weeks since the April 6th reform, we have already seen almost half of this 15% of clients backtrack and thankfully, move away from their blanket approach.

“Furthermore, the small number of clients who were using CEST, but seeking a pre-determined ‘inside’ outcome, were open to re-visit their determinations once they began to lose their contractors.”

'CEST being re-run'

Managing director at IT jobs agency VIQU (which today writes exclusively for ContractorUK on IR35 reform’s timing), Mr Collingwood said his consultants “appealed” to clients on behalf of contractors to “re-run” CEST where the PSCs felt the results were wrong.

“Now all of these contractors are classed as outside IR35 and they have been retained,” he said. “So, in total, 91% of our clients are now willing to undertake fair determinations and offering on and off-payroll opportunities. We will continue to work on the remaining 9%.”

'Deluge of formal IR35 disagreements'

However for WTT’s Rhys Thomas, it’s the statutory right contractors have to a formal disagreement process that presents clients with commercial and administrative issues associated with blanket determinations.

“Lack of clarity and individual determinations pre-6th April will [likely] be met with a deluge of formal disagreements, now that the legislation is in force,” added Mr Thomas, the tax dispute advisory’s managing director.

“[And] poor application of that process risks negative exposure and contractors voting with their feet.”  

'Contractors starting to leave in droves'

Taking to LinkedIn yesterday, accountant Louise Rayner sounded aware of exactly the same issues, when she posted to end-users:

“Perhaps you have made the wrong call regarding contractors and IR35? Mistakes happen, we all make them.

“But are your contractors starting to leave in droves [because of] lower rates?”

'Hardly a marriage made in heaven'

Boss at NumberMill Accounting, Ms Rayner moved to reassure end-users that despite the rules now applying (albeit with ‘light touch’ enforcement), there was “still time to rectify a mistake.”

Yet it might be very subtle changes in working practices that are the ultimate cause of such ‘mistakes.’

“It's entirely possible that some event such as the client reorganising budgets, staff, offices, management structure, or [even] the contractor’s circumstances changing, will render last week's ‘inside/outside’ decision incorrect,” says WTT’s tax director Graham Webber.

“Add to that mix, a propensity for parties in the transaction chain to be elusive and…less than transparent as to their take, and you hardly have a marriage made in heaven.”

'Root and branch reform'

Likewise, the Association of Independent Professionals and the Self-Employed regards the finally underway changes to the Intermediaries legislation as almost catastrophic.

“[We] have campaigned long and hard against these disastrous changes, securing delays and important concessions, but the government [was] determined to bring them in,” said IPSE’s Andy Chamberlain.

The association’s policy director, Mr Chamberlain added: “We continue to urge government to rethink the changes. But now…our other key concern is pushing government for a root and branch review and reform of self-employed taxation in the UK.

“IR35 is not an isolated problem: it is a marker of a tax system that was not built with the self-employed in mind. It is this that has to change – to make IR35 redundant and finally make taxation fairer and simpler for the self-employed.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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