Contractors’ Questions: Is an IR35 Confirmation of Arrangement service an allowable expense?

Contractor’s Question: Are the fees that IR35 status review companies charge for Conformation of Arrangement (CoA) documents an allowable expense for my limited company?

Or should my company buy the CoA service outright? Are there instances where end-users ought to pay for a CoA due to the April reforms to IR35? After all, it’s engagers who must set status. As it’s in both our interests, should the client and I share the cost of a CoA service? Perhaps my agency would be up for contributing to the CoA fund. How can I put this to the agency or client, and would an expert recommend CoA as a IR35 defence strategy for April?

Expert’s Answer: The cost that you might incur when having your IR35 status reviewed by an expert -- including the fees associated when producing a Confirmation of Arrangements (CoA) document -- is a legitimate business expense. This is because it has been purchased ‘wholly and exclusively’ for the purpose of your company. You can claim it as you would any other expense incurred in the day-to-day running of your business.

In respect of which party should cover the cost of any IR35-related services, it is a conversation that you will need to have with each party in the contractual chain. Unlike the incoming reform, which will see medium-sized and large clients legally obliged to determine IR35 status, a CoA isn’t actually required when assessing and safeguarding IR35 status.

Nonetheless, this document can be vital in protecting your tax position amid changes to the legislation. In short, it shows that all parties in the supply chain are in agreement regarding status. Historically, a CoA has been important in immediately shutting down IR35 enquiries -- a point worth making to your client and agency, when talking to them about the issue.

You’re right that it’s in both yours and your client’s interests to ensure compliance. It’s also worth bearing in mind that as it is your recruitment agency which could well carry the IR35 liability from April 2020 as the fee-payer, they should also make sure your status is set correctly. With this in mind, your agency might be open to the idea of contributing towards the cost of any IR35 review -- which might include a CoA. But let me reiterate, this is a discussion you’ll need to have with them.

While deciding who pays for such a service is up for discussion, it’s worth noting that ultimately if the end-user refuses to cover the cost, it will be up to you to pay for it. That said, when compared to the cost of working inside IR35, an IR35 review, which could include help producing a CoA, is small if not relatively inexpensive.

Given the liability will transfer from the contractor to the fee-payer (your client or agency) on April 6th, a number of contractors are concerned that persuading each party to sign this document will prove tricky. However, in theory, if everyone is in agreement about the IR35 status, which has been reviewed by an independent specialist, drawing up a CoA and having it effectively signed off shouldn’t be a problem.

The expert was Nigel Nordone, head of tax at Qdos Contractor.

Friday 3rd Jan 2020