Simplistic IR35 offerings muddy the waters

IR35 news dominates the contracting market but at the end of the day the most important thing for a contractor and a hirer is to have the right contract terms in place to protect fees, expectations and the work delivery, writes Adrian Marlowe, MD of the recruitment law specialist Lawspeed.

“It’s absolutely no use having a contract that doesn’t reflect the true working arrangement. For example a contract that includes a clause that the hirer has no right to supervise or control the work done, included to try and avoid a tax consequence, can lead to dispute. Where the reality is that the hirer needs to check what is being done, when it is done and whether it is up to standard, as is so often a perfectly normal requirement, the contract terms should accurately reflect the genuine position. Changes to clauses are so often suggested for tax reasons, but no one should want to get caught up in a tax investigation likely to arise from tax status driven clauses that are unrealistic.”

The desire to hire contractors without any tax consequence so achieving maximum flexibility has been a given for many years. Marlowe argues that now the mindset of both hirers and contractors needs to change, but care should be taken to consider a suitable long term approach.

“With a plethora of business now offering contract templates linked to IR35 reviews, the direction of travel can be seen”, says Marlowe. “The likely extension of IR35 to the private sector, where hirers will be responsible for making status decisions, is driving both contractors and hirers into the arms of businesses offering simplistic solutions. Hirers and agencies alike are being lured into ‘the world of IR35’ in which standard tax friendly contracts are matched with cheap status reviews undertaken by businesses that can offer no real guarantees. Tax risk exists regardless of what may be claimed otherwise, an investigation could start at any time and for up to 6 years where a contractor is paid gross, and offers of insurance against that risk simply muddy the waters”.

The insurance position was clarified by Stuart Armstrong of the insurance specialist Lockton Insurance at a recent gathering of recruitment businesses organised by the Association of Recruitment Consultancies (ARC). “There is no insurance currently available that will pay out for unpaid levels of tax or national insurance to agencies or hirers in the context of IR35. I cannot foresee one for obvious reasons. The best you can hope for is legal expenses insurance for investigation costs, but the cover will need to last for the whole period of potential liability. Insurers may also avoid any cover at all if it transpires that all the facts were not reported and considered at the time of a linked contract review” he said.

“Get back to basics, stick to reality and all should be well”, says Marlowe. “Properly drawn contracts that capture the business being undertaken should always come first. This requires a 360 degree approach, looking at all recruitment law related aspects and requiring suitable expertise and experience. We have taken this approach for our clients since 2000 with excellent results. This is all the more important now as risks for contractors and hirers are entirely different under the proposed rules. A one dimensional view suggesting simple solutions to what is a complex issue may turn out to be an HR and finance directors nightmare, providing nothing other than an illusion of security”.

For more information  about IR35 strategy and contracts call Lawspeed on 01273 236236.

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