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IR35 key points

Question Marks

Contractors- consider these key questions which we breakdown below:

  • If the role is outside IR35 but the scope changes during the assignment is this a risk?
  • I understand that HMRC have said they will take a ‘light touch’ approach following the implementation of off-payroll. What does this mean?
  • Does taking out IR35 insurance protect myself and the client?

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Does taking out IR35 insurance protect myself and the client?

Many clients and contractors rely on insurance-backed IR35 checking tools. Some of these tools are regarded as generating too many outside IR35 determinations. Many are asking if it unwise in these circumstances to rely completely on untested insurance.

Purchasers of insurance products should be aware that they often include a prospect of success clause. This means if the insurer doesn’t deem the probability of success in defending the claim to be 51% or higher, the insurance simply won’t be valid. For the insurance to be valid the Insurer would likely need to see:

  • a correct initial assessment,
  • robust IR35 contract,
  • scope of work and
  • adherence to working practices throughout.

In reality, if all of that was in place, the insurance wouldn’t likely be necessary.

It is also worth noting that the provision of insurance to mitigate a tax loss has the potential to create a conflict with the managed service companies (MSC) legislation (Chapter 9 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003 and equivalent National Insurance contributions legislation) and any company that seeks to benefit from this type of insurance should take legal advice on the potential impact before they enter into a contract.

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I understand that HMRC have said they will take a ‘light touch’ approach following the implementation of off-payroll. What does this mean?

HMRC has indicated the following:

“You will not have to pay penalties for inaccuracies relating to the off-payroll working rules in the first 12 months of the operation of the new rules unless there’s evidence of deliberate non-compliance. We will not charge a penalty if you took reasonable care to apply the off-payroll working rules correctly but still made a mistake, including making mistakes in status determinations.”

However, that grace period ended on 6 April 2022. Supply chains are reminded not to rely on only one or two of the key IR35 factors in insolation (i.e. including mutuality of obligation, control, and the level of personal service (such as the right of substitution) when making IR35 determinations. Pursuant to recent case law, whilst those factors may be present, the assessment should be made looking at all of the facts and circumstances in the case i.e. looking at ‘the whole picture’.

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If the role is outside IR35 but the scope changes during the assignment is this a risk?

The engagement has to be monitored throughout, any scope changes need to be documented and mutually agreed, it needs to maintain an audit trail of activity for HMRC. In this scenario, if the contractor is working on activity that is not part of the written scope, in effect they are being controlled by the client-this points to an inside IR35 engagement. Had the client updated the written scope for all parties to re-sign, it would probably have fallen outside IR35.

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