How can hiring firms achieve effective Off-Payroll compliance?


With the Off-Payroll reforms due to be introduced to the private sector in April 2021, robust compliance is crucial for hiring firms and their recruitment partners to negate risk and avoid any cliff-edge scenarios.

After the coronavirus pandemic contributed towards a 12-month postponement to the legislation’s rollout back in March, firms have already experienced an effective dress rehearsal. But while some have used the extra time to establish rigid compliance processes, others are yet to act.

Many firms have sought to circumvent their compliance obligations due to the perceived size of the task at hand. However, the emergence of service providers and solutions designed to assist with Off-Payroll compliance means this burden needn’t be anywhere as large as businesses anticipate.

Meeting the ‘reasonable care’ requirement

A more important reason not to cut corners comes in the form of the Off-Payroll legislation’s ‘reasonable care’ requirement, which hiring firms need to satisfy when considering the IR35 status of contractors and demonstrate in each case through the provision of a Status Determination Statement (SDS).

While ‘reasonable care’ will be a new concept for some, it is a well-trodden path and is understood by most tax experts. HMRC has also published some useful guidance to help firms understand what is expected of them, which includes:

  • Taking care to seek ‘appropriate advice’ to ensure correct tax treatment
  • Conducting thorough status assessments and preserving detailed records
  • Continuing to monitor the status of contractors throughout each engagement

This imposes a responsibility upon hiring firms to make informed decisions regarding compliance, which requires an understanding of the legislation. IR35 & Off-Payroll – explained details everything stakeholders need to know, with chapters dedicated to assisting hirers and agencies in overcoming their compliance challenges.

Meanwhile, the guidance also begins to outline the characteristics that firms should look for in their chosen compliance service. In addition to facilitating detailed record keeping and ongoing monitoring, firms will need to demonstrate that they have taken appropriate and prudent advice. Consequently, firms that enlist pop-up IR35 experts with no prior demonstrable experience are more likely to fall short of satisfying the reasonable care requirement.

Is the compliance solution demonstrably accurate?

Hiring firms can enter an engagement with the best intentions and still assume the tax liability risk if an HMRC enquiry deems there to have been an incorrect status assessment. It is therefore imperative that any chosen compliance service can demonstrate the accuracy and consistency of its status assessments.

IR35 is based on complex employment status case law, and so the ideal benchmark against which a service can be tested is the IR35 cases that have reached the tax tribunals.

A credible compliance service should be able to provide detailed test data showing that, when provided with the information from the relevant cases, it arrives at the same outcomes reached by the tribunals. At the very least, the chosen solution should be able to provide an external opinion from an industry recognised legal expert who advocates its accuracy.

Does the solution apply a compliance-led approach?

Off-Payroll compliance isn’t an issue that can be simply circumvented via an insurance policy and it’s important to remember that firms cannot insure against the non-payment of tax, in the same way that you cannot insure against a speeding ticket.

All companies should of course have tax investigation insurance, which covers any investigation costs and liabilities required to defend an investigation. Indeed, this type of policy is heavily recommended in any instance.

However, firms must seek to ensure that the correct tax is paid, and insurance policies will rarely compensate where the claimant hasn’t fulfilled their own compliance obligations. Neither will an insurance policy remedy the stress and reputational damage that a firm suffers when being dragged through the tax tribunals. Prevention is always better than a cure, and it is therefore crucial that any insurance product used underpins a robust compliance process.

Adopting a compliance-led approach is the only way to meet the reasonable care requirement and offer the best protection in the event of an HMRC enquiry. Any service provider must therefore be independent and only offer insurance as a supplementary service to its core offering. If a service offering is primarily insurance-led, then ask why.

Choose independent service providers

The compliance burden suddenly imposed upon UK plc has unfortunately resulted in the emergence of some opportunistic service providers offering status assessments that are designed to steer customers into investing in other services.

These providers are more likely to have a vested interest in the status determination going in a particular direction, which raises questions over the trustworthiness of their outcomes.

One tell-tale indicator of a service provider with a vested interest is where a substantial discount is offered, provided an alternative product is also bought. Another would be the advertising of status assessments that return high ‘outside IR35’ rates that far exceed the industry average.

Ensuring effective Off-Payroll compliance

Effective Off-Payroll compliance requires consideration of many factors, all of which have been accounted for by IR35 Shield and its suite of compliance products for businesses, tax professionals and contractors.

Launched in 2016 by founders who have a decade’s experience building status tools, IR35 Shield has conducted over 45,000 assessments since February 2016. Aligned with case law and demonstrably consistent with past tribunal outcomes, IR35 Shield’s recently enhanced technology bases its determinations on the analysis of over four million real-life data points from past assessments, and can now provide a definitive upfront role-based assessment in 98.6% of cases. This means hirers and agencies can advertise engagements quickly with comfort that there will be no surprises.

Complementing the status assessment with additional features to enable scalability, compliance insights and ongoing monitoring, IR35 Shield continues to innovate and set the standard as the most robust compliance-led solution on the market.

IR35 Shield

IR35 Shield is the cloud-driven industry leading IR35 compliance standard for business and individual contractors.