The coming-into-force of the Off-Payroll (IR35) rules for the private sector on 6 April 2021 was, as was expected by many, diminished, due to more or less all business owners having to focus on maintaining their businesses and livelihoods in light of the calamity of the pandemic.
In real terms this has led to many businesses using contractors who use intermediaries, typically their own limited companies, despite the fact that they have not received status determination statements as the new legislation mandates. As a matter of law, the fact that any such business has failed to issue a status determination statement as hirer means that they are deemed to be fee-payer, and so were in fact obliged to make national insurance (NI) and pay-as-you-earn (PAYE) deductions to the deemed direct payments to the contractor’s organisation.
This is an immediate problem that is now faced by any organisation that has failed to apply the strictures of the new legislation.
However, there is no cause for panic. Any business that believes it has failed to issue these status determination statements now has some essential steps to follow.
First, it is necessary to address the contractual arrangements in question. This is, after all, at the heart of IR35. Questions such as when the contract was first made, whether in fact the contract was adapted prior to the 6 April 2021, and indeed, whether if such a new contract was formed there may be scope for renewing the contractual arrangements are all important. Addressing such fundamental questions may provide a route to ameliorating any failure to issue a status determination statement.
Second, status determination statements must be issued with immediate effect. This requires the contractor’s end-client to grapple with the off-payroll rules today and not tomorrow. An initial assessment using the HM Revenue and Customs (HMRC) check employment status for tax (CEST) tool may assist, notwithstanding that CEST appears to fail to provide a result in 20% of cases. In the least, some light might be shed on the question as to the applicability of the off-payroll rules.
Third, and to make a point that in many ways ought to be the first port-of-call, expert advice is essential. Being late to the challenge is far less significant than pretending there is no challenge to be tackled. There are tried and tested steps that can be taken, including engaging HMRC in the appropriate way, to ensure that any business does not shore up problems for a later date and, instead, clears a pathway to a compliant and streamlined method of doing business with contractors. Businesses should assess their requirements immediately and take expert advice where prudent.
Michael Paulin is the founder of Wolf IR35 Legal Services and a tax barrister