Ensuring IR35 Compliance: Risk that your business needs to be aware of

One of the most crucial aspects of maintaining IR35 compliance is ensuring that your business takes direct responsibility for its processes. Outsourcing IR35 compliance to agencies or workers does not demonstrate reasonable care and places your business at substantial risk. If HMRC questions your IR35 process, stating that you delegate this responsibility and merely sign off on it will not suffice. Businesses must present a detailed, documented process for determining an inside or outside IR35 status.

Three years have passed since the introduction of these regulations by HMRC into the private sector, and we’ve noticed some businesses becoming complacent, thinking that the absence of contact from HMRC means they are safe. This is a dangerous assumption. In the public sector, several organisations have faced investigations and significant fines in the last two years since IR35 was introduced in 2017. For example, the Home Office was fined £33.5 million, Defra £48 million, and the Department of Work and Pensions £87.9 million.

The risk is too high to ignore. It’s essential to be proactive and prepared. If you need assistance in reviewing your IR35 process, don’t hesitate to contact us for support.

Concerns About the CEST Tool

We also want to address the continued reliance on the CEST tool by many businesses. While it might seem like a convenient option, there are several reasons why it should not be used for IR35 assessments:

  1. Significant Limitations: The CEST tool does not account for all the nuances of employment status, leading to potentially inaccurate assessments.
  2. Lack of Updates: It has not been updated or managed properly to reflect changes in case law and HMRC guidance.
  3. Past Penalties: Organisations like Defra have used the CEST tool and faced substantial fines—Defra alone was fined £48 million.

Using the CEST tool does not demonstrate reasonable care and leaves your business exposed to penalties. It is crucial to use reliable methods and expert guidance to ensure compliance and safeguard your business from potential fines.

Keeping IR35 Compliance a Top Priority

IR35 compliance should remain a top priority for every business. This is not an issue that will simply go away, and there are several key aspects to consider:

  • Regular Reassessments: Perform reassessments every 6-12 months to ensure continued compliance.
  • Monitoring Changes: Identify and reassess when there are changes to contracts or working practices.
  • Documented Processes: Implement a documented process that allows contractors and the fee payer to challenge IR35 determinations.
  • Expert Assessments: Ensure that someone with a thorough understanding of IR35 is completing the assessments. If HMRC investigates, you need to be confident in your processes and documentation.

Ensuring IR35 compliance is critical for avoiding significant penalties and safeguarding your business. By taking proactive steps, regularly reassessing your processes, and seeking expert guidance, you can navigate these regulations effectively.

Contact us at Brookson Legal for comprehensive support in staying compliant with IR35 requirements.