IR35 Assessments – Getting it right

With IR35 remaining a very hot topic in the interim management space, Jack Birch, Head of Interim Practice, shares his thoughts on what Procurement Heads are seeing in the market, and some IR35 best practice tips when defining and recruiting roles.

There is a mature interim management market in procurement and supply chain disciplines, and attracting the best quality interims is often a challenge for organisations. Typically roles defined outside IR35 are more appealing for this population, although many will also be willing to work on an inside IR35 basis if the parameters are right. Either way, it’s of paramount importance to understand the IR35 criteria and implications when recruiting any temporary role and make sure these are implemented correctly.

IR35 Misinformation and Poor Practice

There is plenty of criticism about the way IR35 is defined, managed and regulated, the changes effected since the reforms to the policy introduced in 2017 (public sector) and 2021 (private sector) and it can often feel like a confusing subject with many grey areas.

Perhaps it’s for these reasons that we regularly see potentially dangerous misinformation being relayed and sub-par IR35 practices adopted. Here are some recent examples:

  • Suggesting an IR35 assessment is purely down to whether a role is deemed ‘BAU’ or not, or applicable/not based on the job title itself
  • Heard and read tales of agencies who didn’t know what a Status Determination Statement was
  • Businesses and organisations who are so nervous about the topic that they adopt a blanket “all our roles fall inside IR35” policy (whether vocalised openly or it’s just what happens behind closed doors)

I would suggest that the system is already imperfect enough without misinformation perpetuating things!

So, how can it be managed better?

Status Determination Statements

As best practice, every role should have a bespoke assessment for IR35, and an SDS to illustrate this. Here’s my understanding of the key criteria on which these should be based, and which HMRC will assess against in the event of an investigation:

1️⃣ Control: The level of control the client exercises over how the work is performed. If the client has significant control and dictates the manner in which the contractor carries out their tasks, it may indicate an employment relationship.

2️⃣ Substitution: If the contractor has the freedom to send a suitable substitute to perform the work on their behalf, it suggests a self-employed arrangement.

3️⃣ Mutuality of Obligation: This explores whether the client is obligated to provide work and if the contractor is obligated to accept it. In an employment relationship, there is usually an expectation of ongoing work, whereas a contractor typically has more flexibility.

4️⃣ Financial Risk: Contractors who bear financial risk, such as being responsible for rectifying their own mistakes or covering their business expenses, are more likely to be outside IR35. Whereas employees typically have these costs covered by the employer.

5️⃣ Integration: Examines the contractor’s level of integration within the client’s organisation. If the contractor operates independently and doesn’t form an integral part of the client’s workforce, it leans towards self-employment.

Is the contract fit for purpose?

Taking this a step further, once an IR35 definition is made it is of critical importance that the agreement and contract which is put in place reflects the SDS itself (especially for a role deemed outside IR35).

Whether this contract is directly between the end client hirer and the individual/limited company, or whether it’s via an agency or other third party, the terms and wording contained must mirror the scope, environment and working conditions. In the event of an IR35 investigation, HMRC will request visibility of any contractual agreements, and will often put more weighting on these than the SDS itself when making a decision. All involved in the process must ask themselves:

  • Does the agreement align with the SDS?
  • Or does it in fact contradict any of the definitions given around Control, MoO, Financial Risk or Integration?
  • Does it allow for substitution?

Ensuring that any agreements are robust and underpin, rather than undermine, an IR35 determination is crucial to getting IR35 right and mitigating risk to all parties.

To arrange a discussion relating to IR35, or the interim procurement and supply chain market more broadly, please get in touch with Jack Birch for advice without obligation.

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