IR35 has not gone away

22 July 2020

It was a relief to many organisations and contractors that the new IR35 Regulations ("Regulations") which were scheduled to come into force last April were delayed on account of the Covid-19 crisis.  There is no doubt IR35 has been the last thing many businesses and HR professionals have had to worry about in recent times given the tsunami of legislation and directions put in place at short notice to help businesses survive and protect jobs. 

Despite calls for the Regulations to be shelved with Glasgow Central MP, Alison Thewliss commenting that the taxman is "building a house on the sand" it has not gone away and neither is it likely to go away given the need for the government to recoup the billions spent supporting businesses and other costs associated with the pandemic. The IR35 reform has been estimated as raising £250 million in additional revenue in the first 12 months. Therefore there is every reason to believe the HMRC will take an increasingly aggressive approach on any non-compliance when the Regulations come into force next year. 

While the controversy over the Regulations remain and despite a damning report on the legislation by the House of Lords warning that IR35 is fundamentally flawed, for the reasons outlined above, it appears unlikely they will be deferred further particularly having regard to the fact MPs have waved the changes through to the Finance Bill's Report Stage. That said, in response to lobbying against the IR35 changes, the government has promised a more detailed review of the impact of the public sector changes before April 2021 so it is still possible for last minute changes to be made as has been the case so far in the journey of the Regulations. In the meantime, given what some would regard as the long run in to the Regulations the softly softly approach we were all led to believe the HMRC would adopt in the first year of the Regulations could well disappear so this is no time to be complacent.

Many of our clients have already done a lot of preparatory work for the Regulations and feel they are well prepared, but the question has to be asked as to whether this work is still relevant given the changes to working practices, business operations and suppliers brought about by Covid? While none of us know if these changes are for the long term, and it is possible there will be more, now is the time to take stock of your IR35 preparations, review what you have done already, what needs to be done\revised. 

Timelines should be set up over the coming months to avoid having to start all over in terms of your preparations or being taken by surprise by developments. For example, are you happy with the contracts that may have been quickly drafted for a particular project at the beginning of the year and which you were going to use to test the water? Do your contracts cover the additional safety measures that now have to be put in place to ensure the safety of workers and those who come into contact with them? It's all your contracts you need to be concerned with, not just those with the contractors or the end user that need to be reviewed.

Many contractors have felt abandoned by the government during Covid-19 and may well be more assertive and behave differently if they decide to continue working under off-payroll arrangements. Retaining these individuals and their experience is likely to be a key factor for many end users.   Whereas many contractors have been willing to accept contracts provided to them for each assignment without taking legal, they may not be so willing and demand greater terms and reject an assignment if these are not met. For example, if the contractor is trapped abroad on an assignment on account of a lockdown – who picks up the costs they may have to bear if they cannot get home or the losses they will incur if they are unable to work on the assignment. They may want assurances that their health and safety is protected even if the assignment is overseas. The contractor may no longer be willing to trade off a greater reward on one project if their health and wellbeing that cannot be assured. Communication is key here and depending on where you fit in to the supply chain you should now be entering into a dialogue with not just your end user but also your contractors if only to get a feel for what needs to be done well in advance of any assignment and what may need to be covered in your contracts and which does not affect the integrity of their status or your obligations under the Regulations.

Are the administration arrangements which you have in place sufficient to ensure that you will have sufficient information readily available to meet any challenge as to the status of a contractor or to deal with the various parties that may be involved in a status determination statement? It is not unusual for HR to be responsible for these arrangements, particularly smaller businesses. However, this can lead to delay as HR is often disadvantaged by not having the detail of relevant operational issues and misunderstandings arise. Aside from this will they have the time? Even organisations that have large HR departments are currently overwhelmed by the impact of Covid-19, the furlough scheme and now the flexi furlough scheme, changes to contracts, working practices as well as redundancies not to mention dealing with anxious employees. This is likely to continue for some time to tome. Consideration should therefore be given to setting up a system whereby someone is responsible for leading on IR35 who can garner support from HR and operations with the objective of joined up thinking when decisions are made about the status and work of a contractor or the terms that need to be agreed with an end user in respect of that contractor or to deal with enquiries from HRMC. You have the time now to set this up if you have not already.

Many of you will have already taken steps to reduce the risks of non-compliance and these should continue and be regularly reviewed and revised if need be. Clearly, there is a great deal of uncertainty particularly in respect what the obligations are to keep safe workers and those they come into with. Even if you do not have the time and capacity to regularly update/revise over the coming months your IR35 preparations, we recommend that this is something that should be in your IR35 timeline and certainly something to be done no later than the beginning of next year. We are happy to audit what you have done and to advise on what, if any, further steps you may need to take, including any revisions you may need to make to your existing contracts having regard to the points outlined above or particular circumstances of any project or assignment.

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