Public sector employers and medium- and large-sized private sector employers are now responsible for creating IR35 status determination statements for the contractors under current off-payroll rules.
For the first time in IR35 history, IR35 self-determination by contractors working for all organisations except small businesses has ended.
While there may be many companies in the labour supply chain, the two most important roles are that of “end client” and “fee payer”. The “end client” is the organisation benefiting from the services provided by a contractor and their staff. The “fee payer” is the organisation which pays (usually) the contractor.
If you deal directly with a contractor, albeit through a contractor’s limited company, you will be both the end client and the fee payer. If you place contractors through recruitment agencies, you will be the end client and the agency the fee payer.
As the end client, you have to make a judgement based on the actual working practices of individual contractors. Best practice under the new off-payroll legislation is that you should carry out each IR35 determination test on a case-by-case basis. The results of any test will be voided if, when carrying it out, you did not meet HMRC’s reasonable care requirement.
So, what are blanket determinations and why should you avoid them?
To speak to IR35 determination specialists, please call CoComply on +44 (0) 203 051 9792, email contact us or fill out the form below.
What is a blanket IR35 determination?
Blanket determinations (or blanket assessments) are IR35 status determination statements issued by a particular client to some or all of their contractor workforce.
Research suggests that, when the current rules were first introduced for public sector bodies in 2017, they often issued blanket assessments judging all the public sector contractors working for them as being within IR35.
All private and public sector engagers should avoid taking this course of action because of the requirement to take reasonable care when carrying out IR35 status determination tests.
Blanket assessments and reasonable care
In HMRC’s eyes, taking reasonable care constitutes end clients making a full assessment of each contractor’s individual working arrangement. Many experts also advise taking independent legal advice on contractors’ employment statuses.
Any company or organisation hiring contractors will fail the reasonable care test if they judge the employment status of all their contactors without having each working arrangement individually assessed.
Employers face two threats from this approach.
If they make a blanket decision to declare all contractors within IR35, there is a chance that many of their contractors will be wrongly taxed. They are entitled then to appeal against your action and ask you to undertake individual assessments for each off-payroll worker. Although you are under no legal requirement to change their IR35 status, you risk losing an important contractor.
In addition, if you blanket assess all contractors under IR35 and many of them have working arrangements that put them outside IR35, you and your contractors will pay tax you don’t need to pay (although your Corporation Tax will be lower).
If they make a blanket decision to declare all contractors outside IR35, you’ll be liable for tax purposes for unpaid tax, National Insurance contributions and (if applicable) Apprenticeship Levy for affected contractors. Under the new rules, your company or organisation fully bears the tax risk of making the wrong decision.
Blanket IR35 determinations versus role-based assessments
Employers often use role-based assessments which are compatible with IR35 legislation, according to forum notes from May 2018:
“There will be occasions where workers are hired to carry out identical roles, with the same terms and conditions, and where the same determination is therefore correct. This is legitimate and does not amount to a blanket ruling. Treating people in the same factual position in the same way meets the statutory obligation to use reasonable care.”
But Dr Iain Campbell of the Independent Health Professionals Association told Contractor Weekly, “(r)ole-based assessments are always blanketing as it is impossible to assess factors such as the contractor’s financial risks, company structure, working practices, and in particular willingness to be subject to supervision, direction and control, or the myriad of other factors that need to be considered.”
To be truly compliant, we strongly recommend that individual circumstances be considered for every contractor, even those carrying out exactly the same roles as others.
Blanket determinations and your business
IR35 is a complex area of employment law. Please do not rely on HMRC’s CEST tool to carry out assessments. You should certainly not use them for a blanket assessment or role based assessment.
With so many public and private sector employers declaring all contracts within IR35, there is an opportunity to attract the very best talent to your business by ensuring that your engagements are outside IR35. And this is what CoComply does for all our clients.
To speak to IR35 determination specialists, please call CoComply on +44 (0) 203 051 9792, email contact us or fill out the form below.