blog header image

Posted : 20 Feb 2020 at 11:09:58
Category: Payroll News

Share this article

Article from

Alexander Wilson LL.B. (Hons.) (Dunelm.), CTA

IR35 barrister and CTA - Helping all corporations safely retain independent contractors with strong legal advice


"Inside IR35" is NOT a Safe Call

I continue to receive queries from contractors concerned that they are being placed within the scope of the off-payroll rules by clients.

It appears that clients are making blanket decisions in this direction (many doing so publicly). Even if not declaring blanket decision-making, it is clear that clients are assessing the off-payroll rules without reference to the worker.

This is not a risk-saving approach. It actually brings its own risks:

1. Retrospective Enquiry

If you are engaging the same person now and placing them "inside IR35" and before that they were operating "outside IR35", what do you think HMRC's response will be?

Why wouldn't HMRC, so very keen on pushing IR35 on the gig economy, simply ask why you were not paying Secondary Class 1 NIC's (employer's contributions) all along? That's potentially a really big hit.

Even if not the same worker; if you have been engaging on similar projects and now they are all "inside IR35", why shouldn't HMRC smell a rat?

I am not able to quantify the risk as this is uncharted territory. But consider the ESM. Where HMRC, client and worker agree going forward that an individual will be treated as employed rather than self-employed, the manual tells HMRC to look for back-dated, unpaid PAYE and NIC's. This is not specifically written for IR35 but the method of thinking is very clear.

2. Retrospective Enquiry - For the Worker

The client is exposed to retrospective enquiry. So is the worker. For the same reasons.

Why would a worker want to accept an assignment that requires them to place a big target on their back?

3. Reasonable Care

The case law is really, really clear: The employment test includes important elements particular to the worker (business on own account, other clients, intention and so on). Ignore those and you have failed to exercise reasonable care, which is required by the legislation.

The immediate consequence is that you, not the agency, bear the burden of deducting PAYE and NIC's at source. It goes further:

4. Negligence

Inevitably, a client owes a common law duty of care to a worker.

If reasonable care is not exercised (see above) and the worker suffers (foreseeable) harm as a result, you could be liable for damages in tort. Say for example that a careless assessment (and a blanket assessment is unarguably careless, even on HMRC's guidance) and the worker went through a long, painful and expensive enquiry by HMRC? If the enquiry was in fact unfounded, they may well seek advice from the legal profession for damages against you.

5. Employment Rights

The IR35 test is the same test as the common law test for employment.

That bears repeating: It is the same test. The legislation specifically lifts the common law test directly into the statute.

By unilaterally declaring that the engagement is "inside IR35" you will be unilaterally declaring that the common law employment test is met.

If an IR35 assessment is correct, the only correct assessment on employment status will follow suit.

Even worse, any lawyer with knowledge of contract law and employment rights cases will tell you that the law recognises that in the case of employment-type cases, the balance of power lies with the employer. The employer is able to say "take it or leave it".

By making the decision unilaterally, you are placing yourself squarely in that space which, to the employment tribunal, will look precisely like the imbalance of power seen in employment.

The Court of Appeal and Supreme Court have both recently demonstrated in high-profile cases, that the courts will utterly disregard the paper-form of the engagement. If the employment test is met, the existence of a PSC will not matter one jot. Holiday pay. Sickness absence. Pension contributions. All of these and more come into play.

Conclusion

IR35 is a difficult area of law. It is necessarily bound to the common law of contract and the common law relating to employment, as well as the various statutes and regulations that apply. Knowledge of tax legislation and policy is also important when assessing status and risk.

Who is making your IR35 assessments? Who is guiding your overall IR35 decision-making process? I hope the answer is someone with sufficient knowledge and expertise to be able to assess the global impact and most of all, get it right.

There is no risk-averse approach other than getting it right.


Alexander is always happy to help address concerns he is asked about frequently.

Aimed at the engaging businesses (clients). Feel free to copy and provide to your client's decision-makers if you think you are affected by a blanket decision.

He is;

Happy to advise and act for contractors and clients alike.

A barrister and chartered tax adviser, specialising in IR35 issues.

#tax #ir35 #employmentlaw #litigation #barrister #cta #contractor #offpayroll

SIMILAR NEWS

blog header image
PAYROLL NEWS
FURLOUGH SCHEME EXTENDED TILL MARCH AND SELF-EMPLOYED GRANT BOOSTED AGAIN

The government has announced a five-month extension of the furlough scheme while the self-employed will be eligible for a third grant worth up to £7,500. The original furlough scheme w ...

blog header image
PAYROLL NEWS
CHANGES TO THE HMRC EMPLOYMENT STATUS MANUAL WITH REGARDS TO UMBRELLA COMPANIES

It is good to see the HMRC trying to make adjustments to the rules set to protect the workers using Umbrella companies but this just goes to show that they really do not understand how most of the Pay ...

blog header image
PAYROLL NEWS
STATUS DETERMINATION STATEMENT: OFF-PAYROLL EXPLAINER FOR APRIL 2021

The off-payroll framework is fast approaching, there are still two of the key requirements of the new IR35 legislation from April 2021 which seem to be shrouded in mystery, the main legislative obliga ...

blog header image
PAYROLL NEWS
HMRC INTERNAL MANUAL EMPLOYMENT STATUS MANUAL

HMRC internal manual Employment Status Manual Published: 7 March 2016 Updated: 10 February 2020 see all updates Agency and temporary workers: the agency contract and the requirement for personal ...

blog header image
PAYROLL NEWS
IR35 POLL RESULT – CONTRACTORS WILL DUMP CLIENTS ISSUING PSC BLANKET BANS

IR35 Poll ResultThe ITContractor.com IR35 poll result shows that a vast majority of UK contractors plan to dump their clients if the client issues a blanket ban on contractors who use personal service ...

blog header image
PAYROLL NEWS
HMRC PENALISED DIRECTOR INSTEAD OF COMPANY

The first tier tribunal overturned the late filing penalties of a sole director for three reasons: the wrong taxpayer was named, HMRC misapplied the law, and she had a reasonable excuse.Angela Salazar ...

business-directory Business Directory
smartbusinessdirectory Payroll Services Business Directory
truebusinessdirectory payroll-services Directory
payroll-services Directory