In recent years, recruitment agencies have become acutely aware of IR35 - the tax legislation that aims to prevent contractors from working as ‘disguised employees’ and benefitting from paying less tax.
Since 2017, fee-paying agencies placing contractors in the public sector have carried the IR35 liability should the end-client set the worker’s status incorrectly. Now, with the tax reform set to be extended to the private sector in April 2020, any recruiter placing contractors in the private sector must make sure accurate IR35 decisions are being made, given they will also carry the liability.
IR35 itself is quite a complicated legislation, which has led to a lot of confusion when it comes to making sure the rules are applied correctly. And one of the major problems resulting from the introduction of public sector changes was the widespread use of blanket determinations, which you might have heard of.
What are blanket IR35 determinations?
A blanket determination is when all contractors working for a particular client are automatically placed inside or outside of IR35.
Why should agencies advise clients against making blanket determinations?
The problem with blanket assessments is that they easily result in wrong decisions. There are many different individual factors to consider when setting IR35 status, so to presume that every contractor engagement belongs inside the rules, for example, risks mistakes.
And in any case, should an end-client decide as a rule of thumb that all contractors belong inside IR35, they are going against guidance from HMRC. When setting the status of a contractor, HMRC has said ‘reasonable care’ must be taken. The definition of ‘reasonable care’ is open to interpretation, but it’s acknowledged that blanket determinations fail to demonstrate this.
Should HMRC decide that an end-client hasn’t taken ‘reasonable care’, the company will automatically become liable for any mistakes. While this does, in theory, protect recruiters, agencies still have a responsibility to ensure contractors have their status set accurately.
The costs of working inside IR35 are so significant to contractors, that these individuals are more likely to source work through agencies that play a role in helping end-clients make the right status decision.
Are blanket determinations the same as role-based decisions?
On the face of it, it’s easy to confuse a blanket decision with what is often described as a role-based assessment. HMRC reiterated just recently that blanket determinations are not allowed but did stress that contractors working with the same terms and conditions could be assessed as one.
This means end-clients are, in the eyes of HMRC, perfectly within their rights to place any number of workers who have ‘identical’ contracts and working practices either inside or outside IR35 in one go. However, HMRC has been criticised by specialists who argue that role-based assessments do not consider the details of every working arrangement and therefore lack ‘reasonable care’.
These concerns were put to HMRC by several experts in the recent IR35 Forum meeting, with representatives from leading associations IPSE and FSCA, in agreement that both definitions must at least be made clearer. Regardless, at this moment in time, HMRC does view collective assessments made when the contractors share “identical facts and terms and conditions” as compliant.
Ultimately, what matters for recruitment agencies is that the IR35 status of any contractor they place is set correctly. In order to protect themselves and contractors, it’s crucial that recruiters have an idea of best practice when it comes to IR35 and that they can assist end-clients.
How can Parasol help?
At Parasol, our IR35 experts are here to help you, as a recruiter, with any questions you may have around the legislation and it's reforms. Simply speak to your account manager or visit our dedicated recruiter page for help.