5 common mistakes made in IR35 mock investigations

‘Mock investigations’ are becoming increasingly popular with our clients as businesses begin to put their IR35 solutions to the test.

Mock investigations allow your organisation to see potential pain points in your IR35 solution before it’s too late. In the event of an HMRC investigation, these simple checks will provide peace of mind that processes are compliant.

Since the end of HMRC’s soft-landing period for the legislation, we’ve been assisting a number of clients with mock investigations and have identified several common challenges and mistakes. Here are five of the most common issues and how you can address them:

Having the wrong person named as the hiring manager for the audit

If your business identifies the wrong person to complete the IR35 audit of the role or contractor you are seeking to assess, they are unlikely to be able to provide accurate working practice information which will lead to contradictions later down the line and likely inaccurate determinations.

When making an employment status determination, the person providing the evidence for the assessment should be someone who works closely with the contractor and is aware of their contractual requirements. This will ensure that all information provided is correct and a reliable result will be given.

Not understanding the questions

Conducting an employment status assessment is a complex task, so don’t be afraid to ask for help if you are struggling to understand the questions. We have seen individuals hesitate to ask for support, which resulted in them guessing at how to answer the questions, rather than giving accurate information. This can lead to discrepancies or confusion when the answers are being assessed therefore causing delays and the possibility of further investigation.

The best way to overcome this issue is to ensure the relevant people have further training on IR35. There is no need to guess – ask an expert before completing anything you are not sure on.

Lack of policies and procedures

Having policies and procedures in place will ensure managers are practically trained on their understanding of IR35. Line managers have the direct relationship with the contractor and should know the details about how that contractor provides their services and what tasks they undertake; all vital information needed to carry out a status determination assessment.

These policies and procedures will also help show your business’ approach to IR35 and enable a consistent approach across the organisation.

Blanket decisions and role-based assessments

Each status determination should be done on an individual contract basis, personalising the status to individual circumstances where applicable.

The major problem with IR35 blanket decisions is that the one size fits all approach only works if everyone is the same size, which isn’t always the case when working with contractors. A common error we see is businesses making one determination for a role and applying that it to all, or what are perceived to be similar, engagements without ever revisiting the assessment. You need to consider other factors, for example roles managed by different line managers or contractors operating from different sites, as they might be assessed completely differently. If there are several projects going on at once, each project might require different contracts or working practices and therefore require different employment status assessments.

Some businesses may have a blanket decision to not use contractors operating via a PSC. Blanket decisions can have a negative impact on both contractors and the hirer; if contractors are not happy with the decision, they’re likely to look elsewhere for an outside IR35 role, which could mean a loss of talent and specialised skills. Whilst a blanket decision may seem like an easy option, the foreseeable impact is that the businesses will struggle to find the talent they need, leading to failure to deliver projects on time or on budget.

Struggle to evidence approach

Employment status assessments require ongoing monitoring, so it is essential to gather evidence to continually support your determination throughout a contractor’s engagement, and if there are any changes to the contract or working practices a new assessment should be undertaken. Furthermore, we recommend routinely re-assessing sample populations of your contractor assessments (circa 25% every 6 months) so you can demonstrate their ongoing accuracy. By having ongoing evidence, this could help your businesses demonstrate reasonable care and assist with a HMRC inquiry, should HMRC seek to challenge a hirer’s processes or status determinations.

We recommend compiling an evidence pack comprising the business’ general approach to IR35 compliance; each individual assessment and regular re-assessments; plus any other supporting evidence to document compliance such as records of training and IR35 specific policies and procedures. These can be submitted to HMRC to demonstrate how you have overcome your “reasonable care” threshold and avoid getting embroiled in an in-depth investigation.

Be prepared

By avoiding these mistakes now, your business can be fully prepared as HMRC transitions into enforcement mode. Do not be afraid to ask for help where needed; by engaging with an independent expert to carry out a mock investigation, your organisation can identify any issues so they can be resolved, leaving you confident in your IR35 solution.
If you have further questions or would like to embark on a mock investigation, Brookson can help! Get in touch with Brookson Legal to speak to a specialist today.