Dave Chaplin is CEO of IR35 compliance solution IR35 Shield and author of IR35 & Off-Payroll Explained. Here, he explains that there is nothing to fear when it comes to IR35, and the supply chain can be well protected if it adopts a robust compliance-led process. Non-compliance could be far more damaging.

For businesses that are unwilling to engage with the Off-Payroll rules, it will be the fear of IR35 that damages their competitiveness and their bottom line. 

Off-Payroll risk, debunked

Whilst the chances of being subject to an HMRC investigation are slim, that should not be used as a reason to take a lackadaisical approach to compliance. Quite the opposite in fact; firms that adopt a rigorous compliance strategy are less likely to find themselves in trouble.

HMRC’s inspectors typically target the low-hanging fruit, meaning firms that conduct comprehensive status assessments reduce their chances of attracting the taxman’s attention in the first place. 

Even if HMRC comes calling, a robust compliance-led approach that also gathers evidence throughout the engagement to reinforce the status determination should prove enough to halt an investigation dead in its tracks.

What will non-compliance mean for agencies and hirers?

Though Off-Payroll compliance renders tax risk minimal, this has not prevented some businesses from exaggerating the dangers of the legislation for their own gain. Some firms are using scaremongering tactics to encourage firms into risk-averse responses, typically resulting in the onboarding of entire contingent workforces onto a consultancy’s associated payroll model.

But though such blanket measures negate the tax risk posed by Off-Payroll, they also pose significant threats. A survey conducted by IR35 Shield amongst some 3,000 contractors found:

• 65% will seek to avoid working ‘inside IR35’
• 72% would quote a separate rate for ‘inside IR35’ engagements

This means hiring firms that fail to consider ‘outside IR35’ engagements will find themselves at the back of the queue when the most sought-after contractors decide on their next engagement.

Adopting a compliance-led approach 

Contrary to popular belief, mitigating tax risk while remaining competitive via Off-Payroll compliance is not difficult to achieve if agencies and hiring firms work together to ensure that:

• Status assessments are accurate
• Ongoing working conditions continue to reflect the deemed status
• Evidence reinforcing the deemed status is documented throughout the engagement

Parties also need to take care to satisfy the Off-Payroll’s ‘reasonable care’ requirement. Highlighted in section 61NA(1)(a) of the legislation, reasonable care must be demonstrated in a Status Determination Statement (SDS) detailing the reasons behind a status decision.

Though satisfying such requirements for each individual engagement may seem like a tall order, compliance solutions are available that tick the necessary boxes and reduce users’ workloads. 

But though it will likely prove an effective deterrent, a compliance-led approach cannot completely prevent the taxman’s advances. It therefore pays to be prepared in the event of an IR35 investigation.

HMRC begins its Off-Payroll investigations by posing various questions about the engagement to the hiring firm. And provided the firm can provide ample evidence that its regime is robust, an expert advisor should be able to shut down a case before it has got going.

Securing added protection through insurance

One thing hirers shouldn’t do is rely on insurance alone to protect them against HMRC. Insurance products are not a substitute for compliance and policies will not provide cover where the claimant has failed to fulfil their own obligations.  If you do things properly, you shouldn’t need insurance. However, IR35 can sometimes be subjective and, therefore, insurance could prove useful as an additional layer of protection.  However, make sure your policy includes at least six years to cover any claims for carelessness that would result in a retrospective enquiry and provides adequate cover throughout the courts, with at least First-Tier and Upper-Tier tribunals covered in the policy.

Don’t fear IR35

Despite some of the messages purported by HMRC and industry service providers, hiring firms need not fear IR35. Any risks that businesses encounter will be of their own making, whether through refusal to engage contractors outside of IR35, inadequate compliance processes, or slow status assessments.

The coming weeks are critical for those companies that rely on contractors. Adopting a compliance-led approach now is the only way to hang on to their valuable contingent workforce. The message is clear: don’t be scared, get prepared.

Dave Chaplin is CEO of IR35 compliance solution IR35 Shield and author of IR35 & Off-Payroll Explained.