The off-payroll legislation has been in play for over two years now, so it’s a good time to look over your own processes and check that you are complying with your obligations. As a recruiter, you will hold the tax liabilities associated with IR35, so it is imperative that you try to mitigate risks where possible.
The first place HMRC would look is the contractual documentation, so this is your best line of defence. Make sure that all your contracts are up to date and accurate. This means the contract between you and the personal service company (PSC), and the contract between you and the client.
It is crucial that the upper-level contract and the lower-level contracts are consistent. Where this is not the case, this will make it harder to ascertain the true relationship between the parties during an enquiry, or worse, at a tribunal.
It is also a good idea to renew contracts that have been in place for longer than 12 months. A simple updated schedule or addendum confirming any changes (or no changes) can go a long way in demonstrating that you continuously review your documentation, which in turn shows the parties re-enter into the agreement rather than it being an indefinite on-going relationship (which is akin to employment).
2. Working practices
One cannot mention contracts without mentioning working practices. It is essential that the contract supports the working practices. There is no point in having a perfect contract if, in reality, the engagement leans towards employment.
It is important that you consider the working practices on an on-going basis and where they change drastically, this is relayed to the client as it may change their determination.
If you are using an online tool (or even CEST) to look at working practices, it is worth mentioning that whoever is filling out the questionnaire should have a solid understanding of the working arrangements and of IR35 legislation.
3. Status Determination Statement
Make sure that where the client has passed a Status Determination Statement (SDS) to you, you retain this for your records and if there is another party in the contractual chain below you, you pass the SDS onto them. If you fail to pass it to any other agencies or third parties in the chain, the liabilities will rest with you, and you may face higher penalties for failing to comply with your obligations.
Of course, if you are the fee payer, you will have to impose the client’s determination on the PSC’s income. Failing to comply with the client’s SDS will land you in higher penalty territory.
As the party that holds the contract with both the PSC and the client, you will be in a good position to get involved in the SDS process. You should have a solid understanding of both contracts and will have the ability to re-negotiate unhelpful terms.
Following on from that point, it is always good practice to communicate with both the client and the PSC; encouraging honesty and transparency with regards to the terms of the contract and being realistic about expectations. Where an engagement has all the trappings of employment it should be advertised as ‘inside’ and all parties should be aware that the engagement will be treated as inside.
Where there is a disagreement in relation to the status of an engagement, it could be useful to engage with a third-party professional advisor to help. This again will help to demonstrate that reasonable care was taken in the decision-making process.
5. Consider insurance
While complying with the legislation will mitigate risks significantly, it may be appropriate to get a policy in place which will protect your business in the event of an HMRC enquiry. Businesses that rely on cash flow, as agencies do, could be seriously harmed by an unwanted tax bill.
Insurance providers, such as Markel Tax, offer fully comprehensive policies which cover tax, NICs, penalties and interest. As well as covering your own business, this can be used as a selling point to clients to know that not only are you a compliant business, but you have the insurances to back it up.