Contractors charged £180 for IR35 assessment

Some recruitment agencies are passing on the costs of IR35 assessments to contractors even though liability for the decision will legally remain with the original engager

The change to off-payroll working rules, effective from 6 April 2020, brings most contractors working through a personal service company (PSC) into income tax and national insurance contributions (NICs).

This decision has already seen some backlash with a protest outside parliament, constant lobbying of MPs and calls for delays.

Under the off-payroll working rules, the engager (employer) needs to make an accurate determination of the contractor’s employment status to assess whether they are an employee and fall under IR35 rules.

Some contractors are being charged up to £180 to determine their IR35 employee status.

‘Organisations must take reasonable care when determining their workers’ status and ensure they issue a status determination statement to the worker, setting out the reasons for their decision’, an HMRC spokesperson told Accountancy Daily.

‘They are free to decide the best approach to ensuring an accurate determination. However, even if the determination is outsourced, the engager remains responsible for ensuring all legislative requirements are met.

‘They can outsource the decision, but they cannot outsource the legal liability.’

HMRC is pushing its own CEST tool which has come in for criticism from users although it was recently upgraded to reduce errors.

‘The Check Employment Status for Tax (CEST) free tool gives accurate employment status decisions that HMRC will stand by, provided the information input is accurate and the tool is used in accordance with our guidance’, HMRC said.

Umbrella company PayStream has already made its own alternative to the CEST tool, IR35 Comply, which allows employers to determine the IR35 status.

A spokesperson for PayStream said: ‘IR35 Comply is an online service used predominantly by multinational businesses and recruitment agencies but is also available to personal service companies.

‘It enables the IR35 status of an assignment to be determined using a service which has been audited for compliance by BDO and Larson Howie. It is available for free to existing clients of PayStream and is also available to non-client person service companies or contractors who can pay £150 plus VAT for a full working practices review.’

One contractor contacted Accountancy Daily to describe their experience of an IR35 assessment service.

The source said: ‘Contractors are being charged £180 for the processing of the initial assessments, and then for a regular “Review and update” assessment going forward, probably every six months.’

‘The assessment takes about an hour, and includes questions about working practices and responsibilities. These are all things which should be determined by the client and set out in the contract.

‘Then there is the question of the £180 fee. Not only are we being asked to carry out work which is the responsibility of the client (determining our IR35 status), we are being charged for the privilege.’

A recent ContractorCalculator survey of over 5,000 contractors found that only 7% had been charged for an assessment, but having to front the bill for an IR35 assessment could be a deciding factor for some contractors.

Dave Chaplin, who is against the IR35 reforms and CEO of ContractorCalculator, said: ‘Someone somewhere is going to have to pay for this, and ultimately it will come out of the margins somewhere.

‘We are finding that agencies that build this into their margins are likely to have a competitive edge over those that try and charge for it.

‘For clients with existing contractors, in the transition period, they are likely to have opted out of the Conduct of Employment Regulations (CEAEBR 2003), in which case the clients could offer a Hobson’s choice to contractors to either pay for the assessment, or be terminated.

‘For new joiners, it is unlawful to charge for work finding services, under part 2 regulation 5 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (CEAEBR 2003).’

Therefore, engagers may legally ask current contractors to pay for their IR35 assessment, but they would be in breach of the regulations (CEAEBR 2003) if they were to charge new joiners for this assessment.

Conduct of Employment Agencies and Employment Businesses Regulations 2003 (CEAEBR 2003)

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