When organisations first began to tackle the IR35 Private Sector reform it wasn’t long before the media started reporting blanket bans from big brands, and their decision to cease working with Limited Company contractors. Instead advising them that they would need to move to an Umbrella or PAYE payment model.
Demonstrating reasonable care
Whilst other organisations decided to make broad In Scope determinations based on the general working practices of their contractors being deemed as too similar to direct employment.
HMRC’s expectations around the IR35 Private Sector reform however have been extremely clear. When discussing what it deems as reasonable care taken when making IR35 status determinations, it states that it will not accept organisations “determining that every worker who provides their services through an intermediary is caught by the off-payroll working rules without giving any consideration to the specific facts of each individual case.”
Subsequently it also warns organisations to be careful when making determinations on groups of workers, going further to clarify that it will not tolerate “determining that the off-payroll working rules apply to a large group of workers who have some variations between the work that is being carried out, without giving proper consideration to the different working arrangements for each worker.”
It appears reasonable care is an important evaluation method for HMRC’s assessment of how organisations are approaching and managing IR35. As such, they are expecting an approach that considers individual factors – certainly not a blanket approach.
Weighing up the options
It’s crucial to remember that the IR35 legislation was put in place to tackle tax non-conformance, not to deter contractors from operating through legitimate Limited Company working practices. Where contractors provide their services through multiple assignments each year, it may still be beneficial for them to continue to operate through their own company where not all assignments are deemed In Scope.
Whilst a blanket approach may be a safe option to avoid making inaccurate Out of Scope decisions, organisations will need to ensure they continue to be seen as a fair organisation when engaging with contractors – any negative experiences could impact their brand’s perception and what people say about the organisation out in the field.
For organisations to successfully implement the Private Sector reform, a careful balance will be needed to evaluate working practices for off-payroll workers to avoid a blanket approach.
Reference: Gov.uk – Employment Status Manual (esm10014)