Over 240 people signed up for our IR35 webinar last Thursday. I would love to see this as a long-overdue recognition of my presentation skills, but fear instead that it just reflects widespread and continuing uncertainty among end-users about how new IR35 will work in practice. Our latest information is that the draft legislation will be published on 11 July, slightly sooner than expected. Unless picking the dry bones out of tax statutes is your thing, we would normally suggest waiting for the clarificatory guidance. Unfortunately, this is unlikely to be (a) issued more than a couple of months before D-Day in April next year; and (b) very clarificatory – unfortunately these changes will operate in part by fear, especially if it becomes a strict liability failure, and too much clarity would militate against this. That will have the obviously wholly unintended side-effect of extending IR35’s (and so HMRC’s) effective territorial waters way beyond the point potentially defensible at law.
In the meantime, here are a couple of the practical questions raised of us in the webinar (more to follow shortly):
- Do you need to assess each individual contractor, or can you assess a group of contractors (IT developers?) all working on the same programme/in the same team?
This all depends on the degree of similarity of the surrounding facts for each contractor. It obviously ought sensibly to be the case that you could just put a sample contractor through the CEST online status checker, but that will only produce an outcome for Mr A which you could rely upon for Mr B if their facts are substantially identical. Their working on a specific project is helpful, but if some of the contractors are just make-weights to the end-user’s IT team while others bring specialist expertise the end-user doesn’t have, that might produce different answers. Similarly, if one is a team-leader flitting between your project and his/her other clients while the remainder on the same project are 9-5 worker drones just doing what they are told, the same again. Consider also whether any of them were formerly employed by you in a similar capacity (not good news) and how far your due diligence of each PSC reveals an active and established IT consultancy business in its own right.
Perhaps an obvious point – if the contractors on your IT project are all supplied by the same company, whether it is technically a PSC or not, they are much less likely to fall under IR35. That company is then more probably providing a service (the project) rather than simple labour. In all other cases, since individual facts alter individual answers, the proper advice must unfortunately be that you do individual assessments for each of your PSC contractors even if their appointments are superficially similar.
- Does the seniority of the PSC contractor (and associated difficulties in using a substitute) have any bearing on whether IR35 applies?
In theory, no (the test of hypothetical employment if you remove the PSC is the same regardless of seniority), but in practice possibly yes. The greater obstacles to the provision of a substitute at senior level will not be so material if the services being provided are specialist in nature. There would likely be counter-balancing features about the role being carried out by the PSC contractor, such as a lack of detailed control, maintenance of other assignments (board memberships, perhaps) for other clients, the presumed short duration of the appointment, a probable established history of the individual working through a PSC, etc. If the individual’s PSC expressly markets his/her availability for senior specialist roles of this sort, so much the better.
However, if what we are really talking about is the holder of a “standard” and ongoing senior management role (FD, CIO, CFO, CEO, HRD, etc.) who just prefers to be engaged via a PSC, seniority will be no defence. If they are to be a statutory director in particular, then new IR35 will matter much less because the employer end-user is already obliged to deduct tax on directors’ fees regardless of the PSC position.