Private Sector IR35 Reform: Why Role Based Assessments Are Not Enough

IR35

If the public-sector IR35 reform has taught us anything, it’s that IR35 assessments are complex, time consuming and difficult to get right. Private-sector reform is on the way and HMRC and others are talking as if “role based” assessments are a viable solution, so could blanket decisions be the way to go?

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There are those who would be violently opposed to the idea of a blanket assessment under any circumstances, and we can see where they’re coming from. In terms of controlling your risks and treating contractors fairly, not to mention sourcing key skills at a sensible price, blanket or “role-based” assessments are not the answer. We can see a place for them in your broader strategy, but they absolutely can’t take the place of individual assessments.

How recruiters can use role-based IR35 assessments

There are times when you might need to look at the risk profile of a particular role. For example, if you’re advertising a role that will fall under the new rules, applicants will want to know how much they’re likely to take home, and IR35 status has a profound effect on take-home pay. You won’t want to complete an assessment for each applicant during the recruitment process because this will take too long and cause delays. A role-based assessment will allow you to set applicants’ expectations so they can make an informed decision about whether to accept the contract.

However, you’ll still need to complete an individual assessment for each successful applicant, to make sure they’re working under the correct status.

Why individual IR35 assessments are important

A role-based assessment can’t take into account the contractor’s individual circumstances or working practices. For example, the contractor might have several assignments running for different clients at the same time, have a documented history of correcting mistakes at their own cost, and a well-established sales and marketing process for sourcing new work. None of this would show up in a role-based assessment, but it could affect their IR35 status.  

Relying on role-based assessments is likely to result in a significant number of contractors working under the wrong status. Whichever way the error occurs, this is bad for you and your clients.

Incorrect “outside” decisions

Your client, as the “engager” will be responsible for making the assessment, but because you pay the contractor you will be classed as the “fee payer”. If the contractor is incorrectly found to be outside IR35, you as the fee payer could be liable for any additional tax and NICs, including employers NICs, that are not paid as a result. Aside from the additional costs, the resulting HMRC investigation could alienate your client, who looks to you for advice as their trusted recruitment expert, and damage your hard-won reputation.

Incorrect “inside” decisions

Deciding that the contractor should work inside IR35 appears, on the surface at least, to be less risky, which is why so many public-sector bodies have used blanket inside decisions. However, an inside decision increases the cost of engaging contractors, while at the same time reducing their take home pay. The resulting combination of spiralling costs and shortages of key skills have crippled many public-sector projects. In the competitive private-sector, this situation would spell disaster for clients and recruiters alike.

What’s the best response to private-sector IR35 reform?

If you need to set contractor expectations in advance, it might be worth completing an assessment based on the role alone. However, the only way to control your risks and source the skills your clients need without allowing costs to increase unnecessarily is to also complete an individual assessment for each contractor.

Compliance experts like Orange Genie Compliance will help you design and implement robust processes that will allow you and your clients to meet these obligations without holding up your supply chain or creating delays.

If you have any questions or if we can help in any way, please contact our expert team on 01296 468 483 or email info@orangegenie.com.

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