Contractors' Questions: How should end-users assess my IR35 status?
Contractor’s Question: Is there a clause in the new IR35 legislation about the additional checks which a client is supposed to undertake to ‘test’ whether a contractor (not just the role itself), is inside or outside IR35?
It’s not a Status Determination Statement but is related apparently and perhaps goes into the SDS. I say apparently because an agent preparing for today’s new off-payroll working rules from HMRC told me about this, but I can’t find any details.
The agent says if the client does not undertake this deeper, person-related check (I think they had to give a formal assessment to the contractor of how they had made their determination), then the client is in breach, and a blanket ‘you’re all inside’ isn’t permitted. Please advise.
Expert’s Answer: Unfortunately, we cannot be certain of what you’re referring to, but let’s get as close as possible. It could be one of two things which your agent may be referring to.
With regard to the ‘test’ you mention, possible this is the ‘Reasonable Care’ test. While this is not a test in the traditional sense, it is a duty on clients that HMRC has provided a definition of -- despite it being a legislative requirement under the IR35 reforms introduced in the public sector in 2017 (which were the predecessor to today’s reforms in the private sector).
HMRC's thinking behind 'Reasonable Care'
In short, businesses must carry out IR35 assessments with ‘Reasonable Care’ or the resulting Status Determinations will not be compliant. This ‘RC’ provision is in place to prevent businesses from blanket placing all contractors inside IR35 without having considered the terms and conditions of an individual contractor’s contract. A business can demonstrate RC by using CEST (correctly) to determine status, HMRC says, and by engaging a specialist IR35 contract reviewer to assist with determinations.
While my previous point is straightforward enough, slightly more confusing is the fact that HMRC is of the view that ‘role-based’ assessments qualify as Reasonable Care. Different to a blanket determination (where reasonable care has not been taken), a role-based assessment is allowed under the new IR35 when contractors have identical contractual terms and conditions.
Role-based blanketing isn't the norm (fortunately)
However, we always recommend that IR35 status decisions are made on a case-by-case basis.
Unfortunately, the reality is, some businesses insist on conducting role-based decisions even though, in our experience, this type of assessment certainly isn’t the norm.
Scepticism, and the jigsaw
Private sector IR35 reform is officially in place from today, but how effective ‘Reasonable Care’ has been in dissuading businesses from blanket placing contractors inside IR35 remains to be seen. What also remains to be seen is HMRC’s appetite for policing and putting a stop to this non-compliant approach to assessing contractors’ IR35 status. Judging by the fact that blanket determinations continue to take place (according to anecdotal reports), I doubt that I’m the only person sceptical of the taxman’s approach to preventing them.
As we saw in the Kaye Adams IR35 case, determining status should not be limited to the role or indeed the written contract. HMRC provides guidance on ‘personal factors’ here, but establishing whether a contractor is in business on their own account is an important part of the jigsaw.
The expert was Seb Maley, CEO of IR35 specialists and off-payroll rules advisory Qdos.