Off-payroll experts reveal IR35 mistakes, CEST limitations, and a beating-HMRC-blueprint

Five mistakes which end-clients still routinely make managing the April 6th 2021 Off-Payroll Working rules have been revealed.

The first and most “common” mistake is assuming line managers have “sufficient” knowledge of the IR35 framework to make a decision, says CoComply, which revealed the five.  

Specialising in status determinations, the firm said lessons from the public sector’s OPW rules of April 6th 2017 still need learning, if HMRC penalties arising from “unsuitably qualified assessors” are to be avoided by companies.

'Doing a great job'

The second mistake is end-clients believing a Personal Services Company is no longer a PSC -- and so doesn’t need IR35 assessing, once it has more than one director.

But there are two other big assumptions which clients also wrongly make, according to CoComply’s Michael Cleavely, in outlining mistakes three and four.

“Do not assume your recruiter, MSP, [or] accountant is doing a great job just because they’ve said they can manage [IR35],” said Cleavely, the firm’s managing director.

“[And fourthly], providing a Statement of Work does not [by itself automatically] mean an engagement is outside IR35.”

'CEST is not adequate'

On LinkedIn warning of the five, Cleavely also said that, despite what HMRC might advise, “CEST is not adequate to determine…IR35 status unless [the user is] up to speed with the complexities of the legislation.”

Dan Prior, an executive at Kingsbridge, prefers that while CEST “can be helpful” in determining status, “it does have some limitations.”

Going online to warn others, Prior pinpointed four limitations of the HMRC tool.

“CEST is designed to work best with straightforward employment scenarios [so] it may not be as effective in complex or unique situations”, he began.

“[Secondly] the CEST tool relies on the accuracy of the information provided and the interpretation of that information.”

'Relevant aspects overlooked'

Prior said the third limitations is that CEST “may not consider all relevant aspects” of an engagement, if those aspects do not relate to control, substitution or mutuality.

“CEST was initially developed to assess the applicability of IR35 legislation in the public sector,” continued the Kingsbridge executive, introducing the fourth limitation.

“Its effectiveness in determining employment status under IR35 in the private sector [must therefore be less].”

However, it is the effectiveness against HMRC which end-clients are ultimately interested in, should an inspector call.

'Clear audit trail, blueprint'

In light of HMRC probing an end-client with 300 contractors, in an 18-month investigation into its processes and systems to manage IR35, Qdos Contractor’s Dominic Johns reflected:

“The [client’s] processes in place to ensure IR35 compliance -- from expert IR35 status assessments to a clear audit trail -- proved vital in shutting down this [HMRC] check. 

“Added to that, with insurance in place, the cost of expert representation was covered -- which is another reminder of the importance of comprehensive protection.”

Johns likened such a mix of IR35 processes to a “blueprint,” saying it demonstrated compliance to HMRC and enabled the ‘continued engagement of genuine contractors outside IR35’ for the end-client.