April 2021 will see big changes to IR35 in the private sector, as responsibility for determining whether IR35 rules apply to a contract will shift from the supplier (the contractor) to the end hirer (the company or organisation for which the contract is fulfilled) in all medium and large businesses. This means an increase in responsibility for the end hirer for assessing employment status for tax.
For end hirers in the public sector, it’s currently your responsibility to determine the IR35 status of any contracts with personal service companies and has been the case since April 2017.
One of the biggest issues which resulted from the rushed introduction of the public sector reforms in 2017 was blanket determinations.
What are blanket determinations?
A blanket determination is defined as the decision made to place all contractors working for an end-hirer either inside or outside IR35 (in reality, usually inside IR35) without first assessing cases individually.
Should I use blanket determinations to determine IR35 status?
With inadequate time to prepare, some end hirers who engaged personal service companies (PSCs) in the public sector found themselves applying a blanket approach to all assignments in a bid to mitigate risk.
However, taking this approach is not without its risks.
What are the risks of IR35 blanket determinations?
The issue with blanket determinations is that they fail to take each individual circumstance into account and therefore are unlikely to meet the government’s requirement to take ‘reasonable care’. Some of the potential risks of IR35 blanket determinations could include:
Cost - Blanket assessments can be costly for businesses. A potential increase in contractor rates and employer’s National Insurance contributions could all be consequences of deeming your PSCs inside IR35.
Loss of talent - Since the tax benefits of working through a limited company are mostly lost when working inside IR35, there is the potential that many will simply return to the security of full-time employment, or look for outside IR35 contracts elsewhere. This loss of talent can be detrimental to companies.
Damage to reputation - If a workplace takes the decision to assess all their contracts as inside IR35, there is a risk that this could impact their reputation and obtaining talent could become difficult.
Hard to argue reasonable care – The April 2021 reforms include a requirement for the end hirer to take reasonable care when arriving at an IR35 status determination. Failure to do so will mean that the Status Determination Statement (SDS) is not valid. It could be argued that blanket determinations illustrate that the end hirer has failed to take reasonable care.
What is reasonable care?
Neither the legislation nor the accompanying guidance specifies exactly what constitutes reasonable care. Although the definition is vague, legal experts generally agree that it should constitute as the following:
- Taking appropriate advice, from a legal professional or accountant
- Making a full assessment on an individual basis
What is a Status Determination Statement?
A Status Determination Statement must be in writing and must be passed to both the contractor being engaged and the next party in the supply chain. It must include the IR35 status of the role and provide reasons as to why you made the decision you did.
Can contractors challenge blanket determinations?
Contractors can challenge the end hirer’s determination through an end hirer led disagreement process if they believe they have been wrongfully deemed inside IR35. This appeal will go to the end hirer directly and the end hirer has 45 days to respond to this with the reasons they disagree with the appeal or a new Status Determination Statement.
With you all the way
Getting to grips with IR35 and what it means for you can sometimes be a challenge, but we’re here to help. With more than 20 years of experience in helping businesses manage legislation, we designed our IR35 hub to help end hirers with their responsibilities and provide the latest legislative news to ensure you’re always in the know.