Managing IR35 Compliance
The recent disclosure by HS2 of a £6.2million fine to HMRC following a compliance review stresses the critical importance of correctly managing IR35 regulations.
The review concluded that HS2 mismanaged the IR35 classification, and that only a small percentage of their operatives should have classified as outside IR35. This non-compliance may have stemmed from confusion over who was responsible for determining IR35 status—whether HS2 itself or the third-party contractor supplying the labour.
Under IR35 rules, if a third party is providing a genuinely outsourced service, they are responsible for assessing IR35 status. If the arrangement is just for the provision of labour, the responsibility falls on the end client, which in this case was HS2. It can be challenging to differentiate between labour provision and wholly outsourced services, with the main distinction being that in labour provision, the client manages the workers, whereas in outsourced services, the provider manages the work.
Regardless of whether an IR35 assessment is necessary within the public or private sector, understanding IR35 compliance is vital for all parties in the supply chain. This ensures that operatives who are performing roles similar to employees but work through an intermediary like a Ltd Company or a PSC are taxed appropriately.
• Inside IR35: If working arrangements indicate an operative is an employee for example, the work undertaken is subject to supervision, direction, and control, company equipment is often used and there is no financial risk, the operative is likely inside IR35 and should be employed.
• Outside IR35: If an operative is genuinely self-employed, they would, have full control of their work, provide their own equipment, and have an element of financial risk/reward.
At Stonebridge we maintain IR35 compliance by continually assessing our operative’s employment status, reviewing our contracts regularly with our professional advisors, receive regular professional advice, and by keeping well informed ahead of any legislative changes.
Non-compliance with IR35 as the above case with HS2 can result in HMRC demands for backdated tax amongst other penalties. Ensuring all parties within our supply chain are operating within the rules is essential to avoid any financial risk.
If you are unsure about where you sit in the chain or who is liable for IR35 assessment, please get in touch with our compliance team today by emailing compliance@sbcontracting.co.uk.
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