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IR35 Demystified: Assessment

David Roberts

18 February 2020

by David Roberts

( Words)

​On Wednesday 5th February, La Fosse hosted a panel event to discuss the IR35 legislation coming into effect on 6th April 2020.
There’s been a lot of opinion and press coverage of IR35, but not a lot of clarity. We want to make sure that our clients are prepared and in the know regarding the upcoming changes.


Facilitator:

David Roberts – Head of Contracts at La Fosse

Panellists:


Daniel Haslam – Director at giant group; involved in the public sector IR35 rollout in 2017 so has seen the reaction first-hand

Darren Offord – Director and IR35 readiness consultant; worked with HMRC to design the CEST tool

Kevin Barrow – Partner at Osborne Clarke (our partnered law firm); has spoken at 180+ IR35 events

Tania Bowers – General Counsel at APSCo (industry standards body); extensive knowledge of best practice and how we can interpret the law

How do I assess clearly and fairly?

1. First and foremost, make sure you’ve got the data you need, and make sure you’ve got it right.

2. Have access to the contract, or if you’re using an external organisation such as a consultancy, at least understand the questions that need to be asked (that your hiring managers may not have access to). Questions tend to be split between generic ('what are the contracted working hours?') and esoteric (does the contract have the right of substitution, place of work, etc.?)

3. Step through the process and understand who will answer each part of the question

4. Use a CEST tool or an insured and perhaps more detailed derivative (La Fosse have our own insured tool for this – please get in touch if you’re one of our clients)

5. If, as an end user, you start the assessment process and don’t know the answer to a question, be sure to annotate with comments and concerns and take this to the necessary third party to get them validated.

How accurate is the CEST tool?

The CEST tool is not faultless – it overplays some aspects and underplays others. It’s a good tool to use for easy determinations, but for more technical roles, it cannot always give a clear answer.

It is not advised to try to ‘game’ the tool in order to receive a desired result; our experts note that if a case were to go to a tribunal, the CEST tool would likely not be the ultimate decision-maker.

Some cases are easier than others. Once you’ve assessed your contractors using the CEST tool, there may be some that clearly sit inside, so there isn’t much point in investing in other tools. There may also be a few contractors that clearly sit outside.

Unfortunately, the largest portion of consultants will likely sit in the grey area in the middle. Employers could possibly use a back-up tool in addition to the CEST tool – this may be expensive, but contractors may in fact be willing to pay for this themselves as they have a stake in the output.

Alternatively, with a sophisticated internal infrastructure and legal support, employers could select some ‘grey-area’ contractors to go through more complex tools, before establishing a process which fulfils the requirement of taking reasonable care and can be used in any future cases. This could be particularly useful for businesses with contractors in ambiguous roles that require a more nuanced analysis than the CEST tool can provide.

Large accountancy firms are assisting large corporations and consultancies in developing bespoke testing tools. If a company chooses to use one of the ‘big four’ accountancy companies for advice, however, they must be wary – if a small staffing company or consultancy is in competition with the accountancy firm, there could be a possible conflict of interest. It’s best to look for a commercially aware, ‘non-compromised supplier’ in this case.

All things considered, determination for IT and change contractors is primarily dependent on control, integration, and risk.

Control: If the contractor will not listen to someone telling them how to do their job, thereby taking the risk of not being paid, the employer does not have control and the contractor is likely to be ‘outside’.

Integration: The real test that employers must ask themselves is: ‘Do I care who turns up?’ The right to occasional substitution does not defeat IR35, but if continuous substitution would impact the employer, the contractor is very likely to sit inside of IR35. Other indications of being inside is if the contractor has a line manager who they report back to, although this is not a steadfast rule.

Risk: If a tribunal judge hears that a contractor has a risk of not being paid if they don’t deliver to an appropriate specification, they are likely to be ‘outside’.

Tenure also plays a part. If someone has been in the business for a long time as a contractor (generally 2yrs+), there is an expectation that there is a greater risk. However, if a contractor can evidence that they have had multiple clients within a 12-month period, there is a substantial amount of weight to support the fact that they are outside of IR35.
What steps should I take for new teams that will be created after the legislation?

  • Review all contracts and ensure that they are reflective of the new legislation.

  • Ensure that the onboarding process includes due diligence measures such as background and credit checks, as well as a CEST tool process.

What do businesses need to do to ensure compliance by 6th April?

1. Make sure that you have engaged with your tax inspector – this shows that you’re taking this seriously. You will be invited to fill out a questionnaire and have a non-committal conversation regarding the steps you’ve taken and what’s next.

2. Make sure you leave enough time to put all contractors through an assessment and make a status determination.

3. Look at when invoices are paid, not when their contract ends. If a contractor is doing work in March, they will likely be paid in April, and therefore everything in their current March pay period needs to have an IR35 assessment applied to it. This can be avoided through an accelerated payment, but it can be time-consuming.


Read more:

IR35 Demystified: Risk

IR35 Demystified: Liability

Get in touch:

If you have any further questions regarding IR35, please contact our specialist:

Katherine Miller
Commercial Support Manager
katherine.miller@lafosse.com
020 7932 1643