Over the years there have been a number of updates to IR35 and the off-payroll working rules, and it can be difficult to keep track of the present position. In this article we’ll look at what contractors need to know about IR35 in the current contracting market.

The legislation has not changed

The Intermediaries Legislation, also known as IR35, has not changed since it came into force in April 2000. The details surrounding it – like the parties responsible for implementing it and HMRC’s focus in enforcing it have been through a large number of changes, but the legislation itself remains unchanged.

Most end clients are now responsible for determining status

Since 2017 in the Public Sector and 2021 for the Private Sector, responsibility for determining IR35 status has moved from the contractor to their end client. The only exceptions are small private companies and clients who are entirely based outside the UK.

It’s often worth asking potential new clients what their IR35 process is, to ensure they have one, understand it’s importance and are exercising the required “reasonable care” in assessing the status of each contract correctly.

Case law is evolving

With no statutory definition of employment or self-employment, we must rely on case law to provide a framework for IR35 assessments. As a result, assessments can be complex, and each court ruling can inform and influence subsequent decisions.

While the last big shake up of IR35 came with private-sector reform in April 2021, case law has continued to shape the application and interpretation of the legislation since then. For example:

Mutuality of Obligation (MOO)

Courts have increasingly focused on mutuality of obligation, which refers to the obligation of the employer to provide work and the worker to accept it. The absence of MOO has been a critical factor in several rulings favouring contractors. At the time of writing, the industry is waiting for a final judgement by the Supreme Court on Professional Game Match Officials Limited (PGMOL) vs. HMRC, which may provide clarity on the interpretation of MOO in IR35 cases.

Control

The degree of control exercised by the client over the worker remains a pivotal factor. Cases where the worker retains significant autonomy and control over their work tend to fall outside IR35. Kickabout Productions Ltd vs. HMRC (2022) emphasised the significance of control, as well as MOO in determining IR35 status.

The “whole Picture” is important

In Atholl House Productions vs HMRC (2022) the upper tribunal found that Kaye Adams was not a deemed employee, emphasising the importance of considering the whole picture, and highlighting that the absence of employment characteristics in the relationship can lead to an “outside IR35” ruling, even in more structured engagements.

What can we expect going forward?

Caught as it is between HMRC, the courts and Parliament, it’s obviously difficult to predict what might happen in this space, but expert commentators have suggested that we might see the following:

Increased Litigation

As HMRC continues to enforce IR35 rules rigorously, the number of disputes and litigations is likely to rise. Businesses and contractors must be prepared for potential legal challenges.

Clarification of Guidelines

The outcomes of recent cases may prompt Government to provide clearer guidelines on IR35 assessments. Businesses may need to adapt their practices in light of evolving case law to ensure compliance.

Sector-Specific Impacts

Different sectors may experience varying impacts based on how IR35 is applied. For example, media and entertainment have seen significant cases, which could influence how IR35 is enforced in other industries.

Expert guidance is more important than ever

IR35 status determination requires a nuanced understanding of tax law, employment status tests, and specific case law, which can be intricate and difficult to navigate without specialised knowledge. Incorrect assessments can lead to significant tax liabilities, penalties, and legal disputes. For this reason, we advise end clients, recruitment agencies and contractors alike to seek independent expert advice whenever the subject of IR35 status comes up.

Companion accountancy have a long-standing relationship with IR35 experts Bauer and Cottrell, who provide IR35 advice and assessment services to contractors and end clients. This means we always have access to the latest best practice and advice for our clients.

If you have questions or if we can help in any way, please call our expert team on 01296 468185 or email [email protected].