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INTERACTION CVIEWPOINT

A risky business? Think carefully about offering IR35 support services

BY MATT FRYER

As the deadline looms for changes to the off -payroll working rules, we are noticing a worrying trend in recruitment agencies off ering IR35 review or Status Determination Statement (SDS) services. Typically, the agency procures an automated SDS production tool, completing it for the contractors they have placed and passing it to the end-client to rely upon. Although this is done to help clients through the transition, in our view recruiters should avoid this activity or think carefully about their processes.

The reasonable care risk

Th e likely outcome is that HMRC would fi nd that the client has not fulfi lled their obligations. Should this be the case the client will become the ‘deemed employer’ under the legislation and will be pursued by HMRC for all the tax and NIC [National Insurance Contributions] due plus interest. HMRC has off ered to help correct any honest mistakes in the fi rst 12 months, but intentional failure to demonstrate reasonable care may still trigger penalties, bringing signifi cant reputational damage for the recruiter.

Th e off -payroll rules place a very clear obligation on the end-client to produce and issue an SDS. In doing so they are Insurances required to take “reasonable care”. Th is will, as a minimum, While comfort could be taken via a tax loss involve an assessment of the working practices of the role insurance policy it is unlikely that an insurer together with a review of the relevant contracts in place. would stand by a claim in the event where a

It is acceptable to outsource this review to a suitably recruiter had unwittingly inputted incorrect qualifi ed specialist. Th e risk arises if the individual tasked information into an SDS tool. Recruiters should with completing the SDS tool is not an expert in employment also check their Professional Indemnity cover to status or cannot accurately answer the pertinent questions. It ensure that they are insured for this type of work. is also likely that a review of the contracts will be omitted from this process and the SDS may be “signed off ” by a client Managed services company risk representative who is far removed from both the contract and Th e biggest sting in the tail, however, could be the day-to-day working arrangements. impact of MSC legislation introduced in 2007. Providing a service related to IR35 is likely to be considered as falling outside of the agency exemption and may therefore bring the MSC rules into consideration.

MATT FRYER is head of legal services at Brookson Legal Senior accounting officer (SAO) risk

For larger businesses (end-clients and recruiters) aff ected by the SAO reporting rules, there is an additional consideration that the business has not properly managed its tax risks, appropriately managed the implementation of a new system, ensured that appropriate training has been given and obtained the necessary facts to make judgements. Th is can result in personal fi nancial penalties for the SAO and corporate penalties for the business.

Remember, it is the client’s obligation to get IR35 right. Many do need support to do this, but we would advise you to think twice about whether your team has the experience to provide a service that will stand up to HMRC scrutiny. ●