Top ten things to check if you have an outside IR35 decision
“If the client has got my status wrong the liability for tax and NIC is theirs, or the agency’s, so a win-win for me and I have absolutely nothing to worry about.”
Yes, a few cases work out this way, writes Kate Cottrell co-founder of IR35 advisory Bauer & Cottrell, but many do not.
Ten important things you must consider:
Is the outside IR35 decision safe?
- Are you content that the right party has issued the decision? Have you identified the ‘client’?
- Are you confident that the client is overseas, with no UK presence?
- Is the ‘consultancy’ the client or are they simply acting, as an employment business?
- Did you have input into the process – if not - why not?
- Who produced it? Someone you have never heard of or the right person – the one who knows what you do on a day-to-day basis?
- Did they consider the written contract – if not - why not?
- Did you/they check HMRC’s guidance when answering the CEST questions?
- Is there room for doubt in your/their CEST answers, or interpretation of its questions?
- Did they issue a new contract at the same time – one riddled with indemnities making you liable if they did get the status decision wrong?
- Are you confident that they will not change their mind at renewal time?
You and your end-user are dealing with complicated new legislation and many of the answers to these questions may appear obvious, but that is often not the case even for some IR35 specialists. And even for HMRC.
Just sitting back and feeling happy with your outside IR35 decision is not an option, unless you totally understand the rules and their implications.
Some tips to achieve that confident feeling
- Make sure the right party has issued the decision – understand the terminology used in the guidance.
- Make sure the correct processes have been followed by being involved yourself and by agreeing who the right person is to comment on your working practices. Ideally, do it together with reference to your written terms.
- Always check the HMRC guidance relevant to each question on CEST. For example, we see numerous cases where the CEST result is based on ‘financial risk’ because the contractor has paid for things before being reimbursed on the next invoice. Any form of reimbursement does not count as financial risk. It is worth understanding all the questions before starting to enter the answers.
- Indemnities may not be appropriate or enforceable. If the processes are correct and the information input is correct and the liability rests with the client or agency, get the indemnities removed from your contract.
- Be prepared in case the client changes tack to ‘no more PSCs’ or ‘Umbrellas-only or out.’ Make sure you have written evidence (email or letter) to support the decision previously made.
- If all this seems too much, seek advice from your accountant or IR35 specialist.
We are supporting numerous firms and contractors with all aspects of the new (and the old) off-payroll rules. Contractors should continue to undertake ‘due diligence’ and exercise ‘reasonable care’ over their IR35 positions and by doing so they can confidently claim “I’m alright Jack”!