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IR35 Demystified: Liability

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


Where does liability for IR35 lie – who is responsible?

The primary liability lies with the fee-payer: the entity that pays the personal service company (PSC) that the contractor works under. This means that if the contractor’s status were to be questioned by HMRC, the end user would be liable to pay any outstanding tax themselves.

However, this is not always the case. If the fee-payer does not receive a status determination statement from the end user, declaring whether the contractor sits inside or outside of IR35, the end user becomes liable. In addition, the end user is also viable if they issue a statement determination of ‘outside’ but have not taken reasonable care to ensure this is an accurate judgement and this is later challenged by HMRC.

A final important clause to note, something clarified in the January draft of the new ruling, is that even if end users do everything by the book, but the fee payer can’t or doesn’t pay the outstanding tax within a reasonable amount of time, they again become liable as HMRC’s last resort. This clause has caused a lot of large end users to steer away from PSCs altogether.


What happens if a contractor disagrees with a PSC’s decision?

Many contractors are concerned about being wrongly placed inside IR35, and the subsequent earnings loss that comes as a result. As such, the contractor and the fee payer are permitted to request reasoning from the end user if they are deemed to be inside of IR35 but are unsure of why or disagree with the result. If the end user neglects to provide an explanation within 45 days, liability again falls to them.

As an end user, it is important to set a precedent of employing a level of diligence when determining contractors’ statuses. This can then be called upon if required. Some organisations are refusing to recognise individual cases, but there is some risk to this as they may lose some of their contractor population.


Read more:

IR35 Demystified: Risk


IR35 Demystified: Assessment

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

La Fosse is open for business as usual and continuing to operate just as effectively on behalf of our clients and candidates.