Across r10’s business, in Advisory, Staff Augmentation and Project Delivery, we are supporting our clients practically with IR35 ahead of the April 2020 reform. This article highlights what we’ve found to be the key risk areas you should consider for implementation. Our second article focuses on the People impact, to ensure you can continue to deliver your projects with an educated and engaged workforce of employees and contractors alike.
What does HMRC want to see?
HMRC guidance states that Tax Status Determinations should be made with ‘reasonable care’, reiterating ‘blanket decisions’ are not allowed. It is currently reviewing its CEST tool following widespread criticism after its public sector rollout. This includes the recent tax bill of £4.3m for NHS Digital who used it to issue their Status Determination Statement’s.
It is vital your organisation has the necessary understanding to ensure tax determinations are made correctly and in line with the HMRC guidance (or engage others who are able to do so). You need to justify the decisions you are making about your contractor population for both HMRC audits and status determination disputes by contractors.
Where should you begin?
r10’ project approach aligns with your organisation’s risks and is split into 7 key areas:
- Non-compliance will lead to fines – As the ‘end client’, you will be responsible for making Tax Status determinations, producing Status Determination Statements (SDS), and if engaging PSCs directly, paying any applicable PAYE, NI and ENIC contributions. Rather than a one-off isolated exercise, this is a continuous requirement to ensure IR35 assessments are made in line with best practice. No one wants a bill for £4.3m.
- Organisational change is necessary – As a minimum, it will impact HR, Finance, Payroll, Legal and Compliance and any business area that uses contractors. Each are stakeholders for the project and should be involved with the project, including a representative Steering Board.
- You must identify PSC contractors and supply chains – All contingency workers will need to be audited to understand your risk exposure. In most instances, we’ve found this is a larger number than anticipated. You will need to understand and have full oversight of your contractor supply chain to be compliant after April 2020. This will include working with RPOs, PSCs and third-party recruitment agencies.
- The CEST tool is a starting point – The CEST tool will give you a high-level overview of your contractor book, assessing each individual of their assignment tax status and whether they fall ‘inside IR35’. However, from April 2020, you will need a system to issue and record Status Determinations Statements (SDS), including an auditable decision trail.
- Beyond contracts, you need to understand working conditions and practices – At a basic level, you will need to ensure contractor and third-party supply contracts are aligned with the reform. However, you must also review the working practices of your contingency workers alongside the key tests of Personal Service, Control and Mutuality of Obligations for every engagement, now and in the future.
- Defining a Status Determination Disagreement Process – This will need to be in place to enable contractors to appeal the SDS you issue. It should be quick, transparent and simple to follow.
- You will need to educate your staff and current contractors – Key staff numbers will require training and support so that knowledge is spread across your organisation. A robust change management approach will allow you to keep your stakeholders engaged both internally and with consideration of your future contractor talent pool.
Click here to read more about what you should consider managing the impact of this change on your people.
r10’s IR35 position
r10 is a consulting organisation that supplies an Outsourced model for all its services. It only engages via ‘contracts for services’ and is the ‘purchaser’ of any external resources. It will make the tax status determinations for its blended teams of experts and specialists to meet agreed client objectives across its Advisory, Project Delivery and Staff Augmentation services.
Author: Beth Cooper & Jenni Bates