IR35 Blanket Ban Companies
According to the Government’s and HMRC’s own website, IR35 blanket ban companies will be responsible for contractors’ tax and national Insurance. This is because they are not taking reasonable care. The responsibility would normally pass on to the agency or umbrella company.
It seems that companies who think that an IR35 blanket ban would protect them from any future liability are quite simply wrong.
Questions on IR35 Blanket Ban Companies
- Why are IR35 Blanket Ban companies simply wrong?
- Why do companies wrongly believe a blanket ban on PSC contractors makes them non liable?
- So, why does a blanket ban make the IR35 blanket ban company liable to pay the contractors’ tax and NI?
- Why do companies have to test each contractor individually?
- Why is blanket banning not allowed?
- So, why are all the UK’s top companies issuing an IR35 blanket ban?
- What would happen if companies input the wrong data for contractors?
Why are IR35 Blanket Ban companies simply wrong
This is from HMRC’s own website in what they say is an example of a company not taking reasonable care. If a company does not take reasonable care they are responsible for their contractors’ tax and NI.
“A medium, non-public sector, company engages an agency to supply workers. The workers supplied by the agency operate through their own PSCs.
“The client decides not to take any steps to prepare for the introduction of the off-payroll working rules.
Why do companies wrongly believe a blanket ban on PSC contractors makes them non liable
“They elect to simply determine that all workers who provide their services through a PSC will be caught by the new rules, because they undertake similar roles and are engaged under similar terms and conditions.
“They do this, believing that this will protect them from any liability to pay tax and NICs on payments to those workers. The client passes the same SDS to every worker and the agency.
So, why does a blanket ban make the IR35 blanket ban company liable to pay the contractors’ tax and NI
“Even though the client has determined that the off-payroll working rules apply to the engagement, and passed on the SDS to the worker and agency, as the company has not taken prudent and reasonable steps when making their determinations, liability rests with it.
“The client has not considered the status of the workers contracting under different terms and conditions, so they have not satisfied the condition to take reasonable care.
“The responsibility for the deduction of tax, NICs and apprenticeship levy, and paying these to HMRC, rests with the client.”
Why do companies have to test each contractor individually
That’s a turn up for the books.
It quite clearly states that companies who decide not to test contractors individually are not taking reasonable care.
What if companies decided that they are not taking on any more contractors using personal services companies?
The above would still seem to cover this as these workers, although paying PAYE are not full time employees of the company. Thy would still all be off payroll workers.
Individual determinations would have to be done for them and an SDS created for all of them.
Why is blanket banning not allowed
So, according to the HMRC statement above IR35 blanket ban companies would have to do individual IR35 determinations for each contractor.
Indeed it would appear to say that an IR35 blanket ban is not allowed. It would seem to say that all those companies using blanket bans will be incorrect.
Indeed this, in itself, will mean that responsibility for this tax being paid is now with the company itself and not the agency or umbrella company.
So, why are virtually all of the UK’s top companies issuing blanket bans when this makes them liable for the tax being paid? HMRC have people in at the UK’s 2,000 biggest companies advising them on IR35. And after getting that advice companies are issuing an IR35 blanket ban on their contractors.
What is going on? Are the HMRC advisors advising companies not to follow HMRC’s own rules.
What would happen if companies input the wrong data for contractors
Also, the rules state that companies are not exercising reasonable care if they are “Inputting inaccurate information into CEST”. Surely that applies both ways. Some companies are testing all their contractors and failing the lot. They are even telling contractors before they test them that they are going to fail them.
Surely if the data they are inputting for their contractor is inaccurate then they would not be exercising reasonable care. This would make them liable for the contractors’ tax according to the HMRC guidance.
To see the HMRC Gov.uk page which refers to this see Companies who do not take reasonable care
By the way this advice from HMRC on exercising ‘reasonable care’ is highly current as it was published on February 27th.
Please share this article using the social media buttons at the top and bottom of the page.
For all critical IR35 news and advice for contractors click on IR35 News.
Ad – Contractor Services
Many private sector contractors are likely to be told by their client company either that they must operate as an off-payroll employee or join an umbrella company. It’s time to plan for that now.
They need to look at umbrellas ASAP.
Do you need an umbrella company that is right for you and returns you most? Fill out the form below to receive a call today.
For all necessary business insurance, including IR35, click on Business Insurance for Contractors