IR35: End clients, reasonable care and understanding it all
If you are an end hirer with contractors engaged directly through you (i.e. you do not use a recruitment agency) the implications of the reform of IR35 in April 2020 will have a significant impact on your business. Acting as both the engager and the fee payer means that you hold both the responsibility for making the correct determination, and the liability in the event that determination is incorrect.
In a standard supply chain, involving a recruitment agency it looks something like this:
In terms of liability, as long as the end client takes ‘reasonable care’ in making a status determination, then they have no liability – even if they get the determination wrong! If the end client gets the determination wrong, but uses reasonable care to do so, then the liability sits with the fee payer.
This means that in a traditional supply chain, the end client only needs to put a process in place that fulfills the reasonable care standard to manage their risk. The fee payer will want to ensure this process is robust and have their own process in place, as getting the determination wrong can be costly.
What happens in a scenario where the end client is both the fee payer and the engager?
The supply chain looks like this:
It means that when an end client takes reasonable care in coming to a determination, they are still at risk if the determination is wrong. They also hold all the risk for the dispute process, notification for the supply chain, and determining whether the legislation initially applies.
How can clients deal with this?
Essentially there are 3 options:
Option 1 – DIY
End clients can attempt to implement an audit process, fulfill the reasonable care standard, complete the status determination statements, facilitate the appeals process, and ensure communication with the supply chain. This doesn’t eradicate the risk, and whether the risk is adequately managed is entirely dependent on the capability, capacity and experience of your internal team.
Option 2 – Audit
End clients can find a halfway point between outsourcing and undertaking the work themselves, by engaging with someone experienced to be able to undertake the audit for them. This ensures a suitable level of expertise is applied when making the decision. However, in this scenario it’s essential the assessment is backed by a comprehensive insurance product, and due diligence is undertaken on the auditor. This also only manages your initial risk, not the ongoing risk if working practices change, new workers join etc.
Option 3 – Complete payroll
For end clients that want a level of assurance that continues 24/7 across all of the contingent workforce, then an outsourced recruitment solution is the preferred option. This option involves the fee-payer completing the audit with insurance included, but also taking care of the ongoing audit requirements. As well as protecting you from IR35 risk, this option will also manage risk in regards to the Criminal Finance Act, Managed Service Company rules, General Avoidance and more.
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