IR35 compliance solution

There is plenty in the industry press at present about the impact of a tighter IR35 interpretation for Public Sector workers including the supposed exodus of contractors in key skills such as Information Technology to Private Sector roles.

Use of self-employed contractors or those in Personal Service Contracts has afforded a flexibility in sectors such as construction which has arguably underpinned some individual firms’ growth. In construction it has enabled firms to align labour costs with projects rather than an amorphous overhead. Flexibility also appeals to the workers and in many sectors those with the most in demand skills will only work with hirers that offer self-employed contracts.

Now 23% of the UK workforce (and growing) are in zero hour or self-employed contracts (and 35% in the USA).  Tightening regulation and scrutiny means that more than ever, hirers, agencies and workers need to maintain comprehensive and accurate compliance records to avoid tax liability and reputational damage.

The Engage platform provides the most thorough IR35 compliance functionality available, simultaneously protecting the whole supply chain including the worker.  Our process has been evaluated twice in HMRC employment status reviews, and passed with flying colours in both cases.

To be absolutely confident that a contract will stand up to an employment status challenge an employer, and/or end hirer must have the correct contracts in place and then support the ‘actuality’ of the terms of that contract with ongoing evidence.

The contract is easy enough. However, the maintenance of a chain of evidence to support the contract is logistically very difficult and often leads to businesses and workers building a growing liability as contracts roll on without examination.

Engage assists workers, agencies and end hirers to determine whether bona-fide self-employment is a viable proposition in the first place and then runs an automated process prompting workers, hirers and other parties in the supply chain to maintain support for the actuality of the contract, entering evidence (very easily) to support self-employment.

At registration the hirer must stipulate whether they believe the worker can be self-employed i.e. the worker cannot make that decision independently. The worker has to agree that they want to be self-employed and then complete a questionnaire demonstrating they understand what self-employment is / what being a Director of a company is. Also, that in general in this contract the company they are contracting to is a client and not an employer, that there is financial risk in the contract, and that they have no employment rights.  They are also asked to provide anecdotal evidence demonstrating the manner in which they do their work is not supervised, directed or controlled.

All this evidence is maintained on the Engage platform and is visible to Engage, the worker, the hirer, and (where the employer is a recruitment agency or "umbrella" company) to any other businesses in the supply chain benefitting from the services of the self-employed worker.  All of these parties can contribute further anecdotal evidence as to why the worker is self-employed. For example, changing contract rates, changing assignments, working self-determined hours, simultaneous contracts, sub-contracting, unpaid absence, retentions held back etc.  This process is repeated quarterly and cannot be avoided. Incomplete compliance leads to a status called ‘Not OK to Pay’ and that quickly gets the attention and co-operation of all parties, especially the contractor.

While it takes less than five minutes per quarter for any user to complete, the process builds and keeps available a chain of evidence supporting the contract.  Where an IR35 liability appears, for example a contract runs too consistently, is too long, or where the role is too junior to be realistically unsupervised, the employer and the worker is notified and an employed solution recommended (all maintained on the same platform).

Where these ‘changes to employment’ occur each instance is also flagged and added as evidence that the hirer is demonstrably, proactively adhering to regulation: refusing self-employment and offering PAYE alternatives where required.  The system can produce a structured and comprehensive file of IR35 information per worker, or per organisation, for presentation at any HMRC enquiry.