Contractor IR35 Assessments
When making contractor IR35 assessments client companies must take reasonable care. If they don’t then they become the responsible party for deducting tax and National Insurance. That’s even if some other party has already done so.
So, what is considered by HMRC as not taking reasonable care when making contractor IR35 assessments?
Determining Lack of Reasonable Care in Contractor IR35 assessments
- Determining that all contractors are caught by the off payroll rules
- Doing contractor IR35 assessments for a group of workers
- Determining that the off payroll rules apply to a large group of workers whose work varies
- Failing to reconsider determinations where there has been a material change in circumstances
- No proper training or support
- Inputting inaccurate contractor IR35 assessments info into CEST
- Failing to take into account all relevant evidence
- The assessor does not have the knowledge and skills to do the contractor IR35 assessments
- The client doesn’t confirm accuracy of the contractor IR35 assessments if done by 3rd party.
- When a client company can and cannot make contractor IR35 assessments for a group of workers.
Determining that all contractors are caught by the off payroll rules
Firstly according to HMRC:-
“Determining that every worker who provides their services through an intermediary is caught by the off-payroll working rules without giving any consideration to the specific facts of each individual case”.
This is what is called a blanket assessment. However, HMRC do have one get out here. They say “It is acceptable for a client to make a determination for a group of workers, providing those workers are engaged under the same contractual terms and conditions, and in practice work under the same terms and conditions. “
Doing contractor IR35 assessments for a group of workers
“However, if determinations are made for groups of workers where the terms and conditions are not the same, this would not be taking reasonable care. “
So, to be able to do a blanket assessment contractors would all have to have the same contract conditions as other contractors and have the same working practices.
Examples of these would be where some contractors have the same agency and so the same contract terms and conditions and also be working in exactly the same way as other contractors from the agency.
If a client company has a standard contract with all agencies then they could argue that they could do a blanket assessment – providing the working practices are the same.
Of course, even if contractors are from the same agency they may be doing different roles e.g. Business Analyst v Developer.
Even contractors from the same agency doing the same role on different projects may have different working practices.
So, companies can only do blanket contractor IR35 assessments if the contractors all have exactly the same contracts and exactly the same working practices.
Determining that the off payroll rules apply to a large group of workers whose work varies
The 2nd way client companies may not be taking reasonable care with their contractor IR35 assessments is as follows, according to HMRC:-
“Determining that the off-payroll working rules apply to a large group of workers who have some variations between the work that is being carried out, without giving proper consideration to the different working arrangements for each worker.”
Even if contractors are pretty much doing the same work there may be variations. Perhaps one is working from home and one at the client’s office. Perhaps on one project there is a measure of control whereas on another there isn’t. If there are any variations at all the contractor I35 assessments must be done separately.
Failing to reconsider determinations where there has been a material change in circumstances
A third way that client companies may be shown to be not taking reasonable care is where there has been a change in circumstance. Perhaps the contractors is now working from home. Perhaps the contractor is now doing a different role, e.g. Project Manager instead of Developer. Perhaps the contractor is now only working part time there.
No proper training or support
A 4th way where it may be shown that there is not reasonable care would be if there was:-
“An absence of any proper support or training within the organisation to enable those individuals responsible for making determinations to properly consider the off-payroll working rules.”
IR35 is a complicated area. Companies must train those who are making Contractor IR35 assessments properly.
Inputting inaccurate contractor IR35 assessments info into CEST
A 5th way to not show reasonable care is to input inaccurate assessments into CEST.
HMRC say they will stand by the results of any CEST contractor IR35 assessments. This will hold true even if it is later shown that the contractors was really inside IR35.
However, the one exception would be if inaccurate data was entered into the Check Employment Status of Tax tool.
Of course many of the questions are subjective, e.g. about control. And the people determining whether the input data is accurate will be HMRC. The NHS fell foul of this when the tested all their contractors with some testing inside and some outside IR35.
However, HMRC, who were the accusers, the judge and the jury, fined the NHS £4.3m for misuse of the CEST tool. If the NHS want to appeal they will find HMRC the Appeal judges as well.
Failing to take into account all relevant evidence
A 6th way to not show reasonable care is to not take all evidence into account.
When making contractor IR35 assessments companies must take into account all relevant evidence. They cannot do a partial assessment. They must bring all the facts to bear to allow the toll to make an accurate decision.
The assessor does not have the knowledge and skills to do the contractor IR35 assessments
A 7th way to not show reasonable care is to not give the person doing the assessments the proper knowledge and skills.
According to HMRC there is not reasonable care if “The person tasked with completing the SDS does not possess the knowledge required to complete it and is not provided with the required level of support”.
IR35 can be a complicated area so the person doing the contractor IR35 assessments must have the relevant skills to do the job. If they don’t that is not exercising reasonable care.
The client doesn’t confirm accuracy of the contractor IR35 assessments if done by 3rd party
An 8th way not to show reasonable care is to not take ownership of the assessments if they are done by a 3rd party. The company must make sure the results are correct.
According to HMRC, reasonable care is not taken if “The client subcontracts the SDS process to another party and does not confirm the accuracy of that conclusion and the reasons for it”
When a client company can and cannot make contractor IR35 assessments for a group of workers
It is acceptable for a client to make a determination for a group of workers, providing those workers are engaged under the same contractual terms and conditions, and in practice work under the same terms and conditions.
However, if determinations are made for groups of workers where the terms and conditions are not the same, this would not be taking reasonable care.
If the client has not taken reasonable care then responsibility for the deduction of tax, NICs and apprenticeship levy and paying these to HMRC is the client’s. This is the case even if another party has already made deductions in line with the original determination.
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