IR35 Update

Under the new IR35 Rules, it is the end user’s, the ultimate clients, responsibility to make a proper determination on the employment of each worker supplied to it, either directly or via an agency.  That status determination must be undertaken as if the worker is not contracting either through an agency and/or his/her own limited company.

The client/end user will need to provide an IR35 “status determination” setting the IR35 status of contractors working through limited companies, before a contract begins.  That will need to be provided both to the worker directly and also to any agency involved to allow the opportunity for any determination can be challenged.  A status determination statement will need to be a comprehensive statement which: –

• declares a contractor’s deemed employment status following an IR35 assessment;
• provides reasons for the conclusions reached.

Currently, the draft regulations clarify that the requirement for a status determination statement is not met if the client/end user fails to take “reasonable care” in arriving at its decision.  Should this be the case, the client will assume the position of fee payer, which might otherwise be held by an employment agency or the worker/their personal service company.  It is, therefore, important to undertake this task properly with requisite skill.

The adverse consequence of becoming the fee payer, is that the client/end user can assume responsibility for any tax unpaid as a result of an engagement.  They will also become responsible for reporting and deducting tax from payments made to contractors.  Therefore, providing a valid and accurate status determination statement is essential to meeting statutory obligations and mitigating financial risks.

These detailed assessments will need to be based around the usual factors that determine employment status, e.g. control, personal service, mutuality of obligations, financial risk incurred by the worker, provision of equipment, basis of payment, daily rate versus task, exclusivity of service, how much someone has become part and parcel of an organisation and the extent to which it could be assessed that an individual is in business on their own account.

Clearly, making a full assessment on an individual basis will be required.  Engaging an employment lawyer will, of course, be evidence of reasonable care having been taken.  Harding Evans Solicitors can assist both contractors and businesses with these status determination assessments.