The new IR35 legislation may not come into effect until April, but if you’re a hirer you need to start issuing your Status Determination Statements (SDSs) now. There are various reasons why you should get ahead of the rule change:
THE IMPORTANCE OF HAVING AN IR35 AUDIT PROCESS IN PLACE
Firstly, let’s address why hirers need to provide SDS’s. As many of you will be aware, the responsibility for determining a contractor’s IR35 status will sit with the end hirer post April 2021, meaning its important all steps are taken to get this right. HMRC has put a big focus on displaying reasonable care during the decision-making process, even if the contractor ends up being outside IR35, it’s important that your business can demonstrate what steps have been taken to meet the reasonable care criteria.
Starting to audit your workforce now means you have every opportunity to put processes in place prior to IR35 being rolled out and the chance to identify any gaps. This will enable your business to get used to collecting evidence and ensure everyone is comfortable with new guidelines and ways of doing things, reducing stress and making it much easier to focus on other business requirements.
An end hirer that doesn’t provide their contractors with SDS’s, comes to the wrong IR35 status determination or can’t demonstrate reasonable care could have severe penalties imposed on them by HMRC. These will come in the form of any outstanding tax liabilities and fines.
HMRC recognises that all end hirers are different and reasonable care will differ depending on the business criteria. There are four main strategies that can be employed to come to a decision, but they offer varying degrees of reasonable care.
- HMRC’s tool, Check Employment Status for Tax (CEST), which has received criticism from some users.
- Other IR35 tools that produce an automated decision based on the information submitted, but cannot take the nuances of tax and employment law into account.
- Tax assessments carried out in-house requiring a high level of understanding of the law by staff.
- Tax assessments completed by external experts with specific knowledge of IR35.
ALLOWS TIME FOR ANY CHALLENGES THAT MAY BE RAISED BY CONTRACTORS
The decision you come to about whether a contractor falls within or outside of IR35 may not be what they were expecting. They are entirely within their rights to challenge your conclusion and you then have 45 days to respond. Issuing SDSs now gives plenty of time for such challenges to be resolved before the changes come into effect on April 6th.
NEW SDSS MAY BE REQUIRED IF ANYTHING HAS CHANGED SINCE YOU PREVIOUSLY GATHERED INFORMATION
If you got ahead of the game and started issuing SDSs when the legislation was first announced, there’s a chance that the information you gathered may have changed. This is a likely situation for some as the new IR35 rules were postponed from taking effect for a year due to the coronavirus pandemic.
All existing SDSs should be checked now and a new SDS should be issued for any contractor whose working practices are different. Having set up processes previously to tackle IR35 compliance, this should run smoothly, but it’s worth demonstrating the same level of preparedness and addressing any issues now.
ENSURE THERE ARE NO DELAYS TO PROJECTS DUE TO IR35 STATUS DECISIONS
Making sure contractors, your own business and HMRC are all happy with your IR35 decisions is a fine balancing act. The best way to ensure there are no problems come April is to start early, which means issuing SDSs now. That way you can be confident that none of your projects will be held up as a result of IR35, as everything will be in place well in advance.
If you are still unsure about where to start or need further support get in touch with Brookson Legal, the IR35 experts, who are on hand to support.