As we’re starting to see a renewed and robust HMRC focus on IR35 off-payroll legislation and compliance within the private sector, recruitment agencies are starting to see an increased and often unknown risk for recruitment agencies.
It has been over two and a half years since the IR35 off-payroll legislation was rolled out to both the public and private sectors. During this time, several public sector departments face HMRC scrutiny with regards to outside IR35 assessments made for their PSC’s, resulting in those assessments being ultimately overturned. The outcome of HMRC’s attention has left these departments with eye watering liabilities of underpaid tax and NIC, totalling an approximate combined £300 million.
Although this sends out a clear warning, we have not witnessed similar examples of HMRC compliance activity in the private sector which has led, in some cases, to a false sense of security for end-clients and fee-payers affected by the off-payroll legislation. However, all of this might be about to change.
More recently, Markel Tax is seeing HMRC more actively contacting private sector firms to ask about their processes in relation to off-payroll legislation. Their aim is to gather information to enable a decision about whether to investigate the organisation’s activity. Markel Tax has seen an increasing number of enquiries coming through their insurance claims department as well as direct approaches by customers.
Recruitment agencies therefore need to be absolutely clear that their clients' processes around establishing if IR35 applies and issuing status determination statements are robust.
HMRC have set up a specific ‘off-payroll’ team whose main responsibility is to police the legislation and engage with end-clients that utilise PSCs. The letters specifically seek a number of key pieces of information including:
- Numbers of workers engaged via PSC, split out between direct and via recruitment agency
- The details of the procedures and steps taken to assess the IR35 position
- How the IR35 decision was reached and whether CEST or another online tool was used
- Total cost spent on non-employee workforce
- Numbers of workers previously engaged via PSC which are now engaged via umbrella
- Details of any outsourced service providers engaged and how it was determined that they are outsourced
The information sought is comprehensive and it is evident that the scope of HMRC’s enquiries encompasses the whole of the off-payroll legislation, from reasonable care requirements through to the process used to create Status Determination Statements (SDS). Clearly HMRC’s ‘light touch’ approach to the legislation is over.
Where a recruitment agency is involved in the contractual chain, sitting directly above the PSC and making payments to it, it will be deemed the fee-payer for purposes of the legislation. This means that where an end-client’s outside IR35 assessments are successfully challenged by HMRC, despite reasonable care being taken, the recruitment agency will be the liable party. Therefore, it is vital that recruitment agencies satisfy themselves that their clients’ off-payroll processes fully meet legislative requirements in order to produce accurate IR35 assessments.
Predictions expect HMRC activity to ramp up in this area over the next few years given that HMRC are keen to showcase to the Government and the Treasury that the legislation has been, and continues to be, a success in tackling disguised employment.
For those end-clients that have engaged with the legislation properly and are able to demonstrate and evidence robust due diligence processes, the thought of being contacted by HMRC should present minimal concern. However, for those that have buried their heads in the sand or have simply ignored their legislative responsibilities, this should act as an immediate wake-up call and a call to action.
Markel Tax’s IR35 experts
The Contractor Solutions team within Markel tax has a wealth of knowledge and hands on experience when dealing with IR35 off-payroll legislation, from providing consultancy advice through to enquiry representation. Recruitment agencies can get in touch with Markel Tax’s IR35 experts by emailing IR35@markel.com.