IR35: the key is in the detail

The IR35 off-payroll working rules requires organisations to determine whether contractors are in or out of scope to pay tax and National Insurance contributions. How businesses come to this decision is through a status determination, but to ensure hiring managers are making accurate decisions a great deal of care and attention is needed behind the scenes to remain IR35 compliant.

Initially, IR35 may appear straightforward in principle, but its practical application is far from it. This is where the finer details, sometimes overlooked, become pivotal for compliance. From diligently documenting status determinations to understanding the nuances of each assignment, attention to detail is paramount.

The crucial role of staff training

Ensuring that all team members, particularly those involved in recruiting and overseeing off-payroll workers, are well-acquainted with the nuances of IR35 can help ensure consistent implementation of status determinations.

Training sessions should not only cover the fundamentals of the legislation but also delve into its practical application, including how to scrutinise the finer points of a worker’s engagement.

Steps also need to be taken to ensure this training remains at the front of people’s minds when making status determinations or help them identify changes in working practices that will require a new status determination to be issued. That’s why refresher training and regular engagement of the topic is important, to demonstrate to HMRC that you have provided adequate and sufficient support to hiring managers making decisions around off-payroll workers.

Carefully considering IR35 status determinations

Attention to detail is also crucial when evaluating the working practices and assignment requirements of each worker to make accurate status determination statements. The detailed understanding of the particulars of their assignment and work practices will help hiring managers to understand how contractors will go about their work, and help address areas such as supervision, direction, control and right to substitution. Factors such as the obligation of the worker to accept assignments, and their integration level within the company must also be taken into account. These finer details will help to build a picture to support the status determination and consequently, the tax treatment of the worker.

A detailed approach to record keeping

Imagine HMRC initiating an audit into your company’s IR35 adherence – comprehensive records of every status determination, including any disputes and the rationale behind each verdict, will be essential to support this. These detailed records will showcase to HMRC the diligent approach taken in implementing the regulations.

In case of disputes received from contractors when status determinations are issued, having a transparent and detailed record of the decision-making process and the evidence considered can help to expedite conflict resolution and demonstrate to the worker where their working practices fall in scope of IR35.

Understanding your entire supply chain

For organisations who engage off-payroll workers through a supply chain, responsibility for accurate implementation of IR35 may not sit directly with their organisation. Despite this, it’s still crucial that businesses have a good understanding of their wider contractor workforce – and are challenging any working practices that they have concerns about.

Supply chain auditing can help support this, by asking suppliers to detail the workforce they assign to support your projects and work, and checking to ensure tax implications such as IR35 are being fully met.

If you’re not familiar with supply chain auditing, our Linx team provide a bespoke service to work with clients to build an auditing process that works for their business. This helps to demonstrate to HMRC that businesses take their responsibilities extremely seriously and have extensive processes in place to check for compliance.

Practical support for IR35

Linx’s whitepaper, Ensuring IR35 compliance for your business, provides practical support and areas where organisations should be focusing their time to help maintain IR35 compliance.