As the technical recruitment and contracting sectors continue to evolve, understanding the intricacies of IR35 legislation becomes paramount.
In Astute’s first podcast, Terry Buckel, CEO and founder of Astute, and Matt Fryer, Managing Director at Brookson Group, untangle the perceived complexities of IR35, offering invaluable insights into recent changes, challenges, and strategies for compliance.
Key insights:
- Understanding IR35: The podcast kicks off with a foundational explanation of IR35, shedding light on its implications for contractors and businesses alike.
- Recent Legislative Changes: Matt Fryer discusses the significant shifts in IR35 rules, emphasising the shift of responsibility from contractors to end-clients and the introduction of the Status Determination Statement (SDS).
- Strategies for Compliance: The conversation navigates through the maze of compliance, offering strategies for businesses to adapt to the changing landscape.
Resources for a deeper understanding:
- Brookson Group’s comprehensive guides on IR35 compliance
- HMRC’s official documentation and updates on IR35 legislation
- Industry forums and discussions for real-life case studies and advice
Connect with Matt Fryer:
Read the transcript:
For those looking to dive deeper into the conversation between Terry Buckel and Matt Fryer, a full transcript is available, offering detailed insights into their discussion on IR35, its implications, and strategies for navigating this complex legislation.
This transcript can be found here.
A comprehensive guide to IR35 with Brookson’s expertise
In an effort to unravel the intricacies of IR35, Astute hosted Matt Fryer, Managing Director at Brookson Legal, for a podcast that ventured deep into the heart of this complex legislation.
This comprehensive article, drawing upon the rich conversation from the podcast, aims to illuminate the facets of IR35, offering insights and guidance to navigate the murky waters of this tax legislation.
A legislative introduction to IR35
“IR35 is a piece of tax legislation that came out in April 2000,” Matt Fryer begins, setting the stage for an in-depth exploration of the law aimed at identifying disguised employment among contractors.
Fryer elucidates the purpose behind IR35, stating, “Effectively it was the government saying people who work as self-employed through limited companies pay less tax than those people who work as employees.”
This introduction serves as the cornerstone for understanding the legislation’s intent to level the taxation playing field.
The evolution and impact of IR35
With changes in 2017 and 2021, IR35 saw a significant shift in responsibility from contractors to end clients.
Fryer outlines this transition, highlighting, “The original IR35 rules placed the obligation and the tax risk effectively on the contractor…There was a change in April 2017 in the public sector and then a similar change in April 2021 in the private sector, which moved that risk and that obligation away from the contractor to the end-client.”
This pivot underscores a new era in contractor engagement, emphasising the critical need for accurate IR35 assessments by those employing contractor services.
IR35 compliance and best practices
Compliance with IR35 involves a meticulous process where end clients must undertake assessments and produce a “status determination statement.”
Fryer stresses the importance of taking “reasonable care” in this process to avoid penalties.
He points to the complexity and confusion surrounding the legislation, noting that IR35 is “an employment status test for tax purposes only, and it’s based on case law.”
This complexity often leads to varied interpretations and underscores the necessity for expert guidance in navigating IR35 compliance.
Misconceptions and challenges of IR35
The podcast also sheds light on common misconceptions surrounding IR35, such as the belief that a contractor must fall within IR35 after two years of service.
Fryer refutes this, stating, “But there’s no legal basis for that. That’s wrong.”
This clarification is crucial for both contractors and businesses, as it dispels myths that can lead to unnecessary compliance burdens or misguided decisions about contract engagements.
The role of recruitment professionals in IR35
Recruitment professionals play a pivotal role in the IR35 landscape, acting as intermediaries between contractors and end clients.
Their understanding of IR35 is vital for ensuring that contract roles are compliant and that all parties understand their obligations and rights under the legislation.
The podcast emphasises the ongoing conversation and varied views on IR35, highlighting the recruitment industry’s role in navigating these complexities.
The future landscape of IR35
As IR35 continues to evolve, staying informed and proactive is essential.
Fryer’s discussion points towards the importance of ongoing education, dialogue, and legal consultation to adapt to changes in the legislation and its interpretation.
This proactive stance will be crucial for businesses, contractors, and recruitment professionals alike as they navigate the future of IR35 compliance.
IR35 wrapped up
Astute’s podcast with Matt Fryer offers a treasure trove of insights into IR35, providing clarity and actionable advice for navigating its complexities.
By understanding IR35’s implications, adopting compliance best practices, and engaging in continuous learning, stakeholders can confidently face the challenges posed by this legislation.
This detailed exploration aims to empower contractors, businesses, and recruitment professionals with the knowledge to navigate IR35 successfully.
As the regulatory landscape evolves, staying informed and prepared will be key to achieving compliance and maintaining flexibility in contract engagements.
For further reading and to ensure a deeper understanding of IR35, stakeholders are encouraged to consult the HM Revenue & Customs (HMRC) guidelines, seek legal advice, and engage with industry forums.
Such resources provide invaluable insights into compliance strategies, case law developments, and practical advice for navigating IR35 effectively.
IR35 discussion transcript
Terry Buckel: “So thank you very much, Matt, for coming down all the way from the North down to the sunny South to join us here at Astute Technical and help us out with some understanding of the recent changes to IR35 legislation. I’m Terry Buckel. I’m the Founder and CEO of Astute Technical Recruitment and, Matt?”
Matt Fryer: “Yeah. Thanks, Terry. Thanks for having me. Always a pleasure to talk around IR35, clearly a hot topic. I’m Matt Fryer, Managing Director of Brookson. So, let’s just jump straight into it. I mean, let’s go back to basics. So you know, what is IR35 and why was it introduced for those of us that have heard it but maybe weren’t around when it first came out? It was a while ago!”
Terry Buckel: “It is a while ago. Yeah.”
Matt Fryer: “IR35 is a piece of tax legislation that came out in April, so years ago, and effectively it was government saying the people who work as self-employed through limited companies pay less tax than those people who work as employees. So we need some way of differentiating for tax purposes, who’s self-employed and therefore are entitled to those tax breaks versus someone who’s employed. And that is the basis of IR35. It’s an employment status test for tax purposes only, and it’s based on case law. And so it can be quite confusing, quite difficult to understand for some people. Hence, I think why, you know, it’s always a topic of conversation. It’s always something where people have got differing views and, you know, and for my sins, I enjoy talking about it.”
Terry Buckel: “Excellent. You know, I can remember the days where people had IR35-friendly contracts. I thought that sounds a little bit kind of, you know, is it right? But in April there were changes to IR35 rules. So how has this impacted contractors and businesses?”
Matt Fryer: “Yeah. So the original IR35 rules placed the obligation and the tax risk effectively on the contractor to determine their own IR35 status and make sure they paid the correct tax according to that. There was a change in April in the public sector and then a similar change in April in the private sector, which moved that risk and that obligation away from the contractor to the end-client. The end-client being the end user of the contractor. And so from April, all end-clients that use contractors have got to undertake an IR35 assessment and produce a status determination statement. And in doing so, they’ve got to take ‘reasonable care.’ So they’ve got to give it a good go to get it right. They then pass that determination to the recruitment business, and the recruiter is responsible for making sure the right amount of tax is being paid. So it was quite a big change for the contracting sector. Obviously, anything new needs a bit of time for people to get their head around it. Anything new that involves risk leads to different reactions depending on a business’s appetite for risk, depending on the advisors they’re using and depending on the value they place on the availability of talent. So we’ve seen a real mixed bag reaction in the market. Some clients have embraced the change. They’ve understood what obligations are on them, what’s required of them. They’ve given it a good go, and they are still able to engage contractors through limited companies. The other end of the scale, we’ve seen some clients sort of wipe their hands of it. This is too difficult, too hard, too risky. I don’t want any PSC or limited company contractors in my supply chain. So obviously that new nuance in the market results in candidates maybe now being a bit picky around who they want to work for, and digging their heels in and saying, I only want an outside IR35 role because I believe I’m genuinely self-employed and I should get the tax benefits. So there’s commercial implications to those decisions as well. So I see there’s a real mixed bag of reaction. It’s basically a balance of risk. Tax risk and process risk versus access to best talent and best commercials I guess.”
Terry Buckel: “You made an interesting point there. You said about an IR35 role and I think some people are confused. That is the contractor outside of IR35 because of the way that they work or is the role outside IR35? You know, and we’ll talk more about that but definitely with the risk and the attitude and the companies having global or blanket kind of, you know, statements of how they’re going to operate has caused, you know, has caused problems. It’s caused issues with actual projects being delivered that we see. And one example of that for me, particularly was a company that is a global business and they’re kind of new to the UK so new to IR35 and the understanding of it and their attitude as a business that where they have a where they’re quite risk averse was that they felt that they didn’t want to get involved with it because it could damage their brand reputation. And I was like, I’ve done my best to try to indicate, but it’s difficult. What would you say to that?”
Matt Fryer: “Yeah, that, that is quite an extreme reaction, I think. And I think if a company is really conscious of its brand and its brand value, which most businesses should be, rightly so, where does IR35 come into that? So you could say that if they play disregard to the rules, they totally ignored the rules and tried to avoid tax by engaging everyone as outside IR35 and they marketed off that and they won business off that and they’re about to reduce costs as a result of that. Yeah, maybe that’s going to be brand damaging. And if, however, they embrace the change in the legislation and they get the right advice on how to practically manage it, they implement the relevant processes and they try their best to adhere to the rules. If they get some of that wrong. I don’t think there’s any reputational damage there. I mean, it’s interesting that the way the rules have been constructed is that’s the behaviour they’re trying to promote. So HMRC, under these new rules, expect a client to take ‘reasonable care’ in meeting its obligations under the IR35 rules. To me, that doesn’t say you’ve got to get it right in % of cases, but you’ve got to give it a good go. So invest in your what, what’s your policy for engaging an off payroll worker? What training have you done in the business to understand the way that people work? What rigour have you put into your contracts and how have you approach the determination of the IR35 status? That’s all that’s required. And there’s lots of businesses out there that are doing that, and they’re doing that with some cost, but minimal cost as a fraction of the pay bill, if you like. My argument will be blanket banning the use of the PSC or blanketing everyone inside of IR35 arguably could have more reputational damage than actually getting it wrong in a few instances. But from a candidate and from a contractor perspective, you know, the highly skilled, highly valued experts out there, as I said before, you know, some of them are digging their heels in and saying, I want to work for a contractor friendly business. That will take time to understand the way that I work and the way it engages me and will make the right determination. So when you talk about reputational damage, I think there’s two sides to the coin there.”
Terry Buckel: “Yeah, I get that completely and you know, some companies will say, yeah, we’ll pass this over to HR to kind of make a determination statement, which again scares me because, you know, you’re already thinking that this worker, this person is an employee by kind of pushing them down the HR route in my mind or in a lot of cases will be, and quite often if an HR person is completing an assessment tool, they may well answer the questions as though they were an employee. I’ve seen that quite a lot. And it’s like another, wow, you know, it’s a procurement exercise. It’s not an HR-employee thing. So, I mean, there are a number of reasons, but you know, What are the kind of common misunderstandings do you see from clients you deal with around the kind of IR35 rules?”
Matt Fryer: “Yeah. I mean, you know, the point you make is an interesting one. So who are the stakeholders? HR are involved, procurement are involved. Typically finance, the tax department, legal department. It’s a business wide issue and it’s a business wide risk management issue. Who leads on that? There’s often quite a lot debate across the business. Typically, though, it does land with HR. Which is interesting. At the end of the day, it’s the hiring manager that knows more about how the worker is going to be working. So arguably they should they should be heavily involved. So I think there’s lots of, there’s lots of misnomers and there’s lots of misunderstanding in the market. I think the big one is that the IR35 risk is big. It’s hard to manage. I’m not going to engage it. I think that’s wrong and we’ll talk later around the risk that is reducing significantly. In terms of managing it, it’s just a process that needs to be managed. As I mentioned before, people think HMRC will come in the business and HMRC will do IR35 reviews on all of the contractors. That’s not happening. From we’re seeing. HMRC are at this ‘reasonable care’ level. They’re coming in stress-testing the process. If the process looks good, they haven’t got the time resource, the manpower to go and do individual assessments so it’s manageable. So I think, you know, the big misnomer is it’s too hard to manage. I’d counter that. It’s actually easier to manage. I think the second misunderstanding is well, maybe a result of a misunderstanding, is I’ll just blanket ban the use of PSC because it’s easier for me and it de-risks me and I’ll still have access to the same talent at the same cost Not always necessarily the case because by blanket banning the use of PSC, that means the contractor is impacted and their take home pay is reduced significantly. So they’re going to want a higher rate to justify taking the role. Also it means that being paid through pay as you earn and what view have you the end-client got on the payroll models in your supply chain Those themselves bring you risk if they’re done incorrectly, you know, so there’s an unforeseen or hidden risk there in some supply chains that people aren’t aware of. And another misconception, and this has always been a misconception, is that after two years, a contractor has to be inside IR35 But there’s no legal basis for that. That’s wrong. What the rules require is for an ongoing assessment, really, of working practices to see whether someone’s employed or self-employed. And I guess there is another interesting misnomer out there that’s perhaps worth chatting about, which is if I don’t use a PSC and I say engage that individual directly as a self-employed or sole trader worker, I’ve suddenly circumvented the IR35 rules. And we see this in some sectors where end-hirers are starting to directly engage or incorporate individuals directly. It ticks the box because IR35 is not in play but it opens ends up another can of worms with a different piece of legislation. So I think my message is, yes, IR35 has now become an obligation for clients to manage, which brings risk. But all the other different methods of engaging contractors in supply chains bring their own risk, some of which are more, some of which are less. So you need a holistic view really on your supply chains and your engagement models and the risk associated with those. And I think there’s a danger that by blanket banning or precluding the use of a PSC, you’re opening up another can of worms in another area.”
Terry Buckel: “Yeah. Some companies have made the decision to engage PSCs with relevant IR35 insurance in place. Do you see that as having potential problems in the future?”
Matt Fryer: “Potentially. I guess it depends on the on the insurance policy. Is it going to pay out? What requirements are in that policy? And also again, back to the process that the client is undertaken, I wouldn’t see an insurance policy as a free pass. I think there’s a danger that some people have managed IR35 through a tick box exercise that produces an outcome, and that’s backed by insurance. Now, doesn’t feel quite right to me. Presumably in that insurance policy, I know many of them do have a ‘chances of success’ clause, this is an ability for the insurer to sidestep that. Also, from what we’re seeing with HMRC, they’re going into businesses and they’re asking detailed questions around process, policy, system training. We find that end-clients that have outsourced the management of IR35 to their supply chain, which could be an agency with an insurance policy behind it, the end-client can’t answer many of the questions. Or their answer is ‘Speak to the agency. They deal with it.’ If HMRC are hearing that, are they thinking the client has taken ‘reasonable care’, done everything in its best efforts to comply with the regulation? I think it opens the door for further investigation. So I would, you know, it’s a valid solution in its own right, but I would treat it with a little bit of caution and make sure you’re not dropping the ball at that ‘reasonable care’ level.”
Terry Buckel: “So from what you’re seeing at the minute and what you’re hearing from HMRC, If a company has got the proper processes and systems in place, kind of understands it, and has somebody that takes ownership of it, and then they are investigated, and they come up with all the answers, and they can demonstrate due diligence and good practice following the rules, then they’re in a pretty good place. That’s what, let’s face it, that’s what legislation is there for to help us to follow a set of rules and do things right and ultimately, if the determination is ever challenged, the fact is that you’ve got the right systems in place, you’ve done everything right, then you’re kind of in a good place. And again, from a brand reputation perspective or any kind of risk is reduced because you’re doing what the system is asking you to do, doing it the right way.”
Matt Fryer: “Yeah, exactly right. Exactly right. If you think about why HMRC changed the rules in the first place, it was because there was PSCs in the market. There’s not tax inspectors to spend months analysing every individual contract. So they’ve moved the compliance to the party at the head of the supply chain because there’s fewer of them and they don’t want to police at a level of having to do contract reviews, interviewing the worker, interviewing the hiring manager. Again, they haven’t got time and effort, and that’s the grey area that typically goes to tribunal or court. They don’t want to do it that way. They want to do precisely what you’ve just said. Have you got a process that in a decent proportion of times will spit out the right result? If you have, we’ll just move on to another business and we’ll get a clause into one that hasn’t done that. And that’s what we’re seeing from HMRC policing this now. It’s about policy, it’s about process, about your audit trail and demonstrating that.”
Terry Buckel: “Okay, yeah. So then of course last week Autumn Statement some changes to the IR35 legislation. So can you tell me more about that? How do businesses best prepare for those changes?”
Matt Fryer: “Yep. Yep. So we expected something in the Autumn Statement following a consultation in the summer where HMRC have acknowledged a bit of a discrepancy in the current IR35 rules. Currently if they find an end-client hasn’t managed the rules adequately and a tax bill arises, then all of the tax and National Insurance is payable by the client or in some cases the agency, which, yeah, you’d say I’d expect that to be the case. However, there’s a contractor there who’s been outside IR35 been paid gross and has paid their own taxes. So they pay corporation tax, dividend tax, probably some tax through self-assessment. So at the moment, HMRC will be collecting tax from the client and tax from the contractor. So it’s double taxation, which is a no-no, it’s not fair. HMRC are getting two bites of the cherry. So people have been lobbying this for the last couple of years since the rules came in. HMRC finally got round to fixing it and it was the fix that was announced in the Autumn Statement this year. And the fix will allow HMRC to offset any tax paid by the contractor and its limited company against any tax due by the end-client. if HMRC say your determination was wrong. Now that’s significantly over half the risk to the client of getting IR35 wrong if you like, because I mean technically there would be a mechanism to get the tax back from the worker, but you’d have to litigate, you’d have to enforce a contract. Not going to happen. So you’ve now gone from a position of the tax bill being anything of %-% of the contract rate down now to %-% of the contract rate So that risk is significantly reduced. So when you’re looking at your balance of risk, the tax risk associated with getting IR35 wrong from April reduces by over half. How do you view that now? Is it time to review your decision to ban PSCs? Time to review your processes for managing IR35? Because the risk is reduced a hell of a lot. The commercial benefits of being that contractor friendly business that does a proper IR35 assessment and in the right instances can support an outside IR35 assessment. Suddenly you’ve got access to that talent again and less pressure on your commercials. And the risk of getting it wrong is significantly lower than it is today. And so I think it’s going to drive a bit of a bit of change, maybe a re-education, maybe a change in stance for some businesses. I think the other interesting thing that was hidden in the announcement in the Autumn Statement is an acknowledgment by HMRC that if an end-client issues a blanket IR35 determination that everyone is inside of IR35, they haven’t taken ‘reasonable care.’ Which would make sense. It works both ways. It works both ways. HMRC have said, and it was buried in a in a consultation, and it was buried in an Autumn Statement update. If a contractor feels as if the client hasn’t taken ‘reasonable care’ and has made this blanket decision, they should report them to HMRC’s tax-fraud hotline. Now that’s the first time I’ve seen that from HMRC! What they’ll do with that information, I don’t know. But HMRC is starting to say it actually works both way, the ‘reasonable care’ argument. If you’re dealing with off payroll workers, if you have off payroll workers in the supply chain, you’ve got to deal with IR35 correctly. You can’t just ignore it now. That was an interesting move as well. You’re going to shop the client that’s paying you. I’m sure it’ll be anonymous, but what’s the advantage of that? There just needs to be, you know, I doubt there would be any kind of penalty, but just an education piece that you know what? Why aren’t you? So, you know, these guys make this case and actually we think there’s a good chance that they could be. But, again, it comes down to that attitude towards risk. So with a reduced risk, financial risk, of course, if determination statements go against previous assessments, and of course, let’s face it, talent shortage is not getting any better. Especially with, you know, people of retirement age and just generally, you know the lack of ability for movement of people through the EU to help out with projects and jobs, of course, in the UK. So, you know, given all of that, do you think then, with these changes, we might see an increased appetite from business to reconsider the their strategy for engaging with off payroll workers?”
Matt Fryer: “Yep. I think we’re going to see a tide turn. We’re already engaged with a number of clients and recruitment businesses who are aware of this change. And they want to understand it and they’re starting to unpick some of those decisions they made three years ago nearly now. It’s like any change in legislation, the more people understand the new rules, the more best practice emerges, the more people try and comply with them. So that’s good. I think this is a trigger now for people to go back and reassess some of those decisions they might have made. Particularly businesses that made the risk averse decision to no longer work with limited company contractors. Some of those have seen costs spiral, some of them have seen projects being delayed, some of them have seen them not being able to get all of the talent that they need or want. But the cost they’re willing to pay. They all leave us enough in my mind to go back to the underlying issue behind that, which is the decision that was made around limited company contractors. So I think best practices emerging, people are realising that IR35 is something that can be managed, but it’s over-egging it to say it’s just a process. It’s more than just a process, but at the heart of it, just another business process. Get the right advice, Get the process in place and continue to improve it and review it, and HMRC will nod you through. So I certainly think the tide will turn. I also think that the other models in the market all come with their own risk and it’s worth us just touching on those. So I think to still, you know, you mentioned people, you know, may have moved abroad, may have retired early because they can’t use limited company and benefit from that anymore. That has happened. But the majority of the professional contractors, let’s call them that work for PSC, have moved into being paid through umbrella companies or other payment intermediaries that purport to be an umbrella company but are doing something a little dodgy. And there’s tax avoidance happening in those supply chains. Some of it is actually tax fraud. Mini umbrellas. is a big hot topic for HMRC at the moment. As an end-client under the Criminal Finance Act, you’ve got an obligation to manage compliance risks throughout your supply chains and make sure that you’ve got processes in place to prevent the facilitation of tax evasion. So you might think you’ve solved an IR35 headache, but you may have created opportunity for tax evasion in supply chains through payment intermediaries that you may not see. So again, you know, it’s a good time to have a think around what engagement methods are you going to allow in your labour supply chains and how are you going to manage those risks? At a bigger level than IR35 I think, you know, some businesses probably need time to think through that as well. So potentially a business is out there thinking, ‘Hey, we are protected. We don’t have any off payroll contractors. No worry about IR35 because everyone’s working through umbrella companies or some other intermediary.’ They potentially haven’t got a full understanding of how those companies work, and some contractors they’re going, ‘Hey, I got an umbrella company that’s giving me % take home,’ which is great. Or something that you might well be able to find in a Google search and actually that’s tax fraud. And then the client is, if you investigate it would be responsible.”
Terry Buckel: “Exactly right, yeah. So the Criminal Finance Act is a little known piece of legislation that has probably been around four or five years now. HMRC have got a number of active cases, you know, in the twenties and thirties so it’s not that prevalent, but a good proportion of those are in labour supply chains. So it is a sector of the market that HMRC think there is tax avoidance, probably tax evasion at the far end of the scale and if they see that, they’re going to use all their powers to try and get the money back. So an holistic view on risk is probably where you’d want to start rather than just focusing on this IR35 thing that’s a bit scary. I mean, there are obviously loads of different legislation. But you know, again, IR35 is what we’re talking about here it’s where we see clients that have made decisions. So for those that in the past have, perhaps, you know, made the decision because of risk, not to engage, or those that maybe and therefore are now thinking, ‘Okay, so these changes, maybe I could be better informed.’ And for any new people that are involved in this as well, rather than perhaps take the recommend of that one person in a business that think they know all about it, and you wouldn’t want to stake your business, reputation and risk on one person, how could a business prepare themselves to be properly informed? Because, you know, a Google search isn’t going to give them the answers. And so they need to engage with somebody who’s an expert. You know, there are well, there are a number of companies that purport to be experts in IR35 but I know you guys are. But, you know, if I were taking you to meet a client, and said, ‘Right, okay. You’ve got a big project coming up. This is what we want to do. We want to understand how we could engage off payroll workers.’ You know, what would you kind of recommend as the way we go about that?”
Matt Fryer: “Yeah. So, there’s a a playbook, if you like, and it doesn’t work for everyone. There’ll be nuances, but you know, the starting point is making sure the right people in the business understand the IR35 rules at a high level and what they need. So there’s a big education piece and that’s right down to people that manage contracts, right down to people who actually engage with the contracts on a day to day basis. The hiring managers. So talking about clients then who maybe have already made, you know, decisions, and with the changes, they might want to reconsider or maybe new people who are new to this. To help them get the right systems and processes in place, the right understanding, the right education. For me, the biggest part is education. How can you help? What would you suggest? It would be a way of going about helping start a new process.”
Matt Fryer: “Yeah. So I think I think now would be a great time to do that for two reasons. Firstly, a couple of years down the line, best practices starting to emerge. And thirdly, obviously we’ve got the de-risk in April. So in terms of best practice now, I think get some external help from a third party. By all means, go to your, your accountant. Your accountant will give you a view of the legislation, but there are providers in the market who specialise in IR35 and work with recruitment businesses that understand A: The legislation B: How other people have reacted to it, what worked, what hasn’t. C: How HMRC are currently policing it, and D: The commercial implications of various decisions that can be made. So I think a well-rounded external adviser coming in to give you a bit of a steer would be a good way to start. You’re right on education. The relevant people in the business that are involved in making hiring decisions as a basic need to know the law, need to know the rules. But again, it’d be useful if they understood what different businesses, how they’ve chosen to manage it. What has worked? What hasn’t? Share best practice. And make sure everyone’s on the same page and come up with effectively your business’s centralised policy for managing off payroll workers and contractors. Once you have that, you can then push that out and educate other people in the business. So that would be the main point for me. Just use the expertise and the knowledge of people that are in the market, hearing in different views and opinions, understanding what works. We now have the benefit of HMRC already started compliance activity and so we we can see the questions they’re asking, the timescales they’re expecting responses by, and the decisions they take depending on the types of responses they get. So let’s share that best practice. Let’s understand. Also let’s have a think about looking backwards and say maybe the decisions that we have made, what implications has that giving us? Was that a positive decision? Is it neutral or is it giving as a headache? If it’s giving us a headache, how can we try and unlock things to help with that? So I think you’re right. Education is key. My other one would be to make sure that whatever decisions are made, whatever policies are are put in place, we start to build an audit file. And an audit file being that ‘reasonable care’ audit. So if HMRC knocks on your door tomorrow and said, ‘Prove to me you’ve taken ‘reasonable care’ in managing these new tax rules,’ if you’ve got that they and ready to go and you can get it to them, you know, within a couple of day turn around, straightaway, you’re on the front foot and HMRC know you’re on it. And you just start to get them to understand that let’s not waste any time with this business. Let’s move somewhere else.”
Terry Buckel: “Yeah, yeah, I get that. And I guess in terms of, you know, as you would expect when you engage a legal partner for anything in life or business they are a standard template, model forms or whatever, but when it comes to right, let’s understand what the processes and procedures are, is that something that that you can help with as well?”
Matt Fryer: “It is. It is, yeah. So the basic level, it’s about, you know, having contracts in place that tick the boxes. It’s about helping produce the status determination statement and giving some advice on particularly the borderline cases. Sometimes it’s obvious whether something is in or out of IR35 quite often it’s not so. So, you know, we can help with that. But also, you know, it’s not just STX production factory, it’s giving you that advice and giving you that guidance, helping with written policies. Now, I always hesitate to say a policy template because a policy should be tailored for every business, but we’ve done it for multiple people and we can help you. What’s popular right now is a mock HMRC audit. So we’ll pretend to be HMRC and quite often the client will say, ‘These are the people I want you to write to or speak to and give them no notice, and let’s just see where we are as a business.’ So that’s always an interesting process to go through. Off the back of that process or without that, Also, we help with building a ‘reasonable care’ pack. So HMRC have given guidance on what they think ‘reasonable care’ looks like and what you need to do, and we can see them policing to that guidance when they’re out in the market. So why not get ahead of that curve and get that pack ready? You know, so that’s something that is well worth looking at doing. But also, don’t forget, this is a continuing obligation. I think some people made a decision two, two-and-a-half years ago and they got a process and they’ve just left it. Quite frighteningly, some businesses we speak have got an interim or a consultant contractor in to design their IR35 policy, train it out to the business and that contractor is now no longer with the business and everyone’s forgotten about it. So it’s about keeping on top of it as well. And yeah, I mean using a third party comes with a cost. I know people will be concerned about that, but if you train people in your business to understand and manage the process, the cost really is coming in and sense-checking that no one’s deviated and nothing has changed. So I think, you know, it can be managed cost effectively. And when we get into sessions with people thinking around the commercial side quite often you’re more than justifying any external costs or any commercial benefits that come from the decisions. You just see in our world, the Energy from Waste world is one of them, you know, where projects can be delayed and cost, you know, literally hundreds of millions of pounds. And that’s, I’m not saying that’s down to IR35 obviously, but you know, you get the right people on the project that are industry experts that, you know, don’t want to work through an umbrella company, and they will look for another opportunity with a company that is a bit more savvy and clued up and has done the right, you know, the right checks and follow the right processes, and engage them through their limited company. And then, you know, the other business can then benefit from the expertise of someone who has a better track record perhaps of delivering things. So yeah, as you say, a cost but it could be, it could be nothing compared to the potential costs for being late with delivery as happens in the project world.”
Terry Buckel: “Yeah. Yeah. And I think another sort of commercial implication of a of a ban on limited companies also some businesses have said for certain roles were not going to go to agency anymore, we’re not going to buy labour, We’re going to go to a consultancy business and outsource the whole project to them. And the cost, as you can imagine skyrockets and quite often dressing something up as a statement of work, actually, it’s not. So you know, that really is where some of the cost can spiral. So, you know, we are speaking to some clients now who are saying, ‘I’ve used a consultancy to do this. Am I outside of IR35?’ In some instances they haven’t side-stepped that, but the costs have spiralled. So I think that’s another interesting area to take a look at as well.”
Terry Buckel: “Yeah, of course. Finally, do you have any predictions for the future of IR35 and future things that the HMRC are being lobbied for and that may well come to fruition?”
Matt Fryer: “Yeah. So I think I think most people are still hoping that IR35 or the off payroll changes to IR35 will be repealed and the risk will go back to the contractor. I know some people are still lobbying that. I can’t see that happening. Government push really hard to get this in. I can’t see them unpicking it. There is still a funny in there in that the end-client’s got to make the determination for employment status and if they do that with ‘reasonable care’ they pass the tax risk to another party, the fee payer, which is often a recruitment business. Now that seems a little inequitable to me, I don’t know. There are people lobbying government to say, Why doesn’t all the risk sit with the client? Why does that move? So that might be something that HMRC to look at. The other thing to remember with IR35 is the underlying status determination is based on case law. So if a case goes to court, you could get new case law precedent being set, which then could change the way that you actually assess for IR35 So we need to keep an eye on that. There’s a case we’re expecting the results on. It’s with the PGMOL. The Professional Game Masters Officials. So football referees. I think that’s at court now. We’re waiting for the decisions come out. So that could change some legal precedent, which might mean people need to go back and think about how to assess. But that’s really at the technical level for making that assessment. So I think I think it’s here to stay. Maybe the point around where the tax liability sits could get looked at. But the big change coming next year is this this offset mechanism which makes life easier for a lot of people. In terms of other things, the the only thing I’d mentioned is government is keen to regulate umbrella companies. So we talked earlier around the risk of an inside IR35 role going through a payment intermediary that purports to be deducting the right amount of pay as you earn, but doesn’t and tries to evade the tax. Government are trying to formally regulate that sector of the market. Now I think we’re months away from any changes there but what HMRC have proposed in the consultation document, is if an umbrella company goes bust and it’s evaded paying tax, that that tax liability in some cases moves up the supply chain to the recruitment business, and they’ve also proposed potentially to the end-client. So this is where we’re talking around balance of risk, that’s far riskier than getting an IR35 determination wrong. So I think it’s about, you know, again, the final point is, you know, we’re talking about IR35 now, but it’s a broader risk issue in that labour supply chain. And make sure you’re not extinguishing one risk and heightening another risk somewhere else. So just having that holistic view of what’s going on is critical.”
Terry Buckel: “Right well listen, I think that’s, you know, that’s been a really good conversation and hopefully people that see this or listen to it pick up some good pointers, and I’d like to thank you very much. for again, for coming all the way down to talk to us and of course, educate some of my team as well. I’ve heard some really good feedback from them already so that’s, that’s really appreciated. How people get in touch with you, you know, or the business if they want to learn more?”
Matt Fryer: “Yeah, so obviously Brookson Group is the business that I work for. We’ve got a legal services business that specialises in IR35 So we are the only SRA-regulated law firm in the UK that specialises solely on IR35 and employment status. And we’re doing a lot of work with our our agency partners helping them educate and also helping clients themselves, putting those policies and manage IR35 You can contact me at Brookson Legal through our website and happy to share contact details more formally. I presume you can put stuff on like my email address and phone number.”
Terry Buckel: “Absolutely. Great. Right. Well, thank you very much then.”
Matt Fryer: “Thank you, Terry. Cheers.”
