The recently published House of Commons Public Accounts Committee (PAC) report into the IR35 reforms has confirmed that the UK needs an effective tax framework to enable businesses to access the flexible workforce.
Although it has been previously painted in a negative light, IR35 can be a force for good – supporting business growth and attracting talented contractors, as well as increasing visibility of contractor workforces.
For the energy industry, which relies on contractor talent, it’s vital for operational delivery, agility and growth.
However, the PAC report highlights how many organisations are currently unable to navigate the complex IR35 system, risking both tax liabilities and the loss of talent to competitors who can offer more attractive and compliant contracts.
Uncovering the reasons behind the complexity, the Check Employment Status for Tax (CEST) tool was called out by the PAC as “difficult to interpret correctly,” while guidance was “long, too general in scope and not integrated into CEST itself”.
The report also found that businesses are not able to get all of the information they need to accurately assess a worker’s status.
Although this has been highlighted by various recent IR35 reviews, reliance on CEST as a tool for IR35 compliance continues to be commonplace. Yet compliant use of the tool relies on the person using it having a detailed knowledge of the information that they require and of how to input it correctly.
As we’ve seen in the public sector, failure to understand this can often result in non-compliance and tax bills several years later.
Organisations that decide to apply blanket inside-IR35 determinations to contractor populations to avoid needing to use CEST may feel this is a ‘safe’ route forward. However, not only is this a direct contravention of the reasonable care guidelines, it’s also a barrier to skilled talent attraction.
To avoid these pitfalls, it is vital that businesses put in place a robust and compliant IR35 solution which enables them to confidently offer outside IR35 roles and remain attractive in an increasingly competitive employment market.
For businesses with an IR35 solution already in place, the report should offer a moment of pause and a call to stress test their processes to ensure they meet the threshold for HMRC’s ‘reasonable care’. Through a mock investigation or audit, potential pain points in a solution can be identified and mitigated so that businesses can be confident in their solution should HMRC carry out its own investigation.
The energy sector has a long history of contractor excellence and is well placed to take a lead on IR35 compliance in the competition for engineering talent.
We’re looking forward to attending the Energy Ball later this year to celebrate the sector and all its achievements.
For more information on Brookson Legal visit brooksonlegal.co.uk.