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People are now well aware that IR35 is here to stay. With the HMRC’s promises of increased compliance, contractors are already noticing an upward trend in Revenue activity, and many are poised for more enquiries in the coming months.
HMRC are already increasing their IR35 efforts, it launched 256 IR35 enquiries in the 12 months from April 2012 – 13 for example compared with just 59 in the previous tax year (2011-12) and they have now set up a total of four IR35 teams tasked solely with enforcing the legislation.
So, IR35 is a pretty big deal… But what can Agencies do about it?
As it stands, the risk and implications of being caught by IR35 lie with the contractor. But whilst it’s widely acknowledged that both the recruiter and the end client take the relevant measures to ensure their contractors’ compliance, recent admissions suggest otherwise.
The BBC (no stranger to contracting controversy) recently stated that, “The use of service companies is advantageous because it makes clear where responsibility lies under tax rules for the payment of appropriate tax, namely with the service company.”
This statement, highlighted for concern by contractor accountant Brookson, issues some causes for apprehension regarding the best interests of the personal service companies, as the broadcasting corporation appears to have only utilised these companies to cover themselves, should legitimacy ever be questioned.
Given this context, it’s imperative that agencies, end clients and contractors all understand and adopt compliant clauses and practices.
Firstly, it is essential to ensure that a contract is IR35 friendly, containing robust and correct clauses regarding control, substitution, and mutuality of obligation. Whilst a contract is usually the first port of call for HMRC’s team carrying out an investigation, it’s very unlikely to be their one and only.
HMRC suspect that satisfactory clauses set out in contracts are often not reflected in actual working practices. As a result, the customs frequently take advantage of their right to investigate the second tier of the enquiry.
End client, peers, agencies, etc, may be questioned by HMRC when attempting to decipher the authenticity of an individual’s actual working practices. Evidently, it’s therefore in everyone’s best interests to mirror the clauses in a contract as much as possible.
Here at Qdos, we are dedicated to satisfying the needs of recruitment agencies, and as specialists in IR35, are committed to raising the profile and reputations of recruiters as an IR35 compliant agency.
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It’s important to note that ultimately, whilst steps can be taken and help can be provided, the ultimate risk and responsibility of IR35 lies with the contractor.
All contractors working through a Personal Service Company are generally advised to have their IR35 position considered by a professional. An expert consultant’s scrutiny of a contract is, after all, much more favourable than the assuming, ruthless assessments of HMRC.
Consultants are well versed in scouring through all clauses contained in a contract and highlighting those that are either unsatisfactory, or could be easily improved. Working practice questionnaires can also be offered by some consultants, which will identify whether or not contractual information is reflected in the day-to-day activities of the concerned individual.
Finally, it’s strongly suggested that any agency or end client champions this message to their contractors/workforce. In a time where an increase in IR35 activities is becoming more and more evident, the compliance of all parties involved should be thoroughly considered and ascertained.
Ask away! One of our team will get back to you!