Employers and agencies face onerous tasks under latest IR35 proposals, warns iLaw

iLaw’s head of employment law has warned that the latest proposals and guidance for IR35 will leave many employers with a considerable amount of additional work and responsibility.

The draft bill, released earlier this year and the guidance provided last month, has confirmed a lot of things, such as the small business exemption, and added new tasks and checks for employers.

However, two changes in particular could be extremely burdensome for employers. The first of these is the introduction of the status determination statement.

This will require end-clients, i.e. those using the services of contractors, to provide a statement which says whether or not it believes IR35 applies to both the contractor and the party directly engaging the workers.

Within this statement they must give their reasoning for reaching their decision, which can be challenged.

If this is not provided then the company will be classed as the fee-payer and responsible for deducting the appropriate tax and NIC from the contractor before it is paid to HMRC.

Reflecting on the change, Julian Cox, Head of Employment at iLaw, said: “This seems to be an attempt by HMRC to prevent the use of blanket determinations, which I am sure most contractors will welcome.

“It will, however, place a lot of pressure on companies to make these difficult determinations, which is going to be harder in large organisation that uses a lot of agency workers and consultants.”

Julian said that for agencies, this new rule may create another issue in that it may affect regulations surrounding limited company opt outs.

Legislation created in 2003 by the European Union offered contractors the opportunity to opt out of certain workers’ rights regulations.

By opting out, agencies have been able to use contracts that contain provisions that would otherwise be enforced by the regulations, such as withholding pay where work has not been done properly, and charging transfer fees beyond the regulatory limits.

Meanwhile, contractors benefit from being able to offer more attractive working arrangements that would otherwise not be possible.

However, where an employer decides that a person should be included within IR35 and paid via PAYE they will no longer have the option to ‘opt out’.

Julian said: “Agencies will be forced to change their procedures and, in some cases, their contracts.

“They need to take this into consideration now before the IR35 rules come into place and speak with contractors and their clients to ensure they are happy with these arrangements.”

The other main concern, accord to iLaw, is the introduction of a client-led disagreement process. This should give contractors an opportunity to overturn what they view as inaccurate determinations, by allowing them to request the reason for a determination.

The end client will then have 45 days to respond and must provide its reasons for the original determination.

The end client will also be required to either confirm or change its decision. If they fail to respond then they will then become the fee-payer, meaning that all liability will transfer to them.

“What the legislation doesn’t make clear is what happens if a contractor is still unhappy with a determination after is has been reviewed, which is creating additional uncertainty for contractors,” Julian added.

“Although a final consultation ended on these changes on 5 September, we may not have these arrangements confirmed until the Chancellor’s next budget, and they could be dropped depending on the outcome of a general election,” added Julian.

He said growing political uncertainty meant that nothing was certain, but he says that everyone invested in consultancy and contracting must ensure they are prepared for IR35.

For help and advice on all aspects of employment law, including the new IR35 rules, please contact us.