Engaging contractors after the IR35 reforms

This article provides general information only. It is not legal or tax advice. Organisations should take professional advice on their specific circumstances.

Contractors remain an important part of the UK workforce. They bring specialist skills, flexibility and the ability to scale teams quickly. Since the off-payroll working reforms, however, the way organisations engage them carries more responsibility than before.

The good news is that a clear, consistent process makes contractor engagement manageable. This article outlines the main points to consider.

What changed

The off-payroll working rules, commonly known as IR35, apply where a worker provides services through an intermediary, usually their own limited company. The rules ask whether the worker would be an employee if engaged directly.

Before the reforms, the contractor’s own company was responsible for that assessment in the private sector. From April 2017 in the public sector, and from April 2021 for medium and large private sector organisations, the responsibility moved to the client. Small private sector clients are generally exempt, and the contractor’s company remains responsible in those cases.

The client’s responsibilities

Where the rules apply, the client must determine the worker’s employment status for tax purposes. It must take reasonable care in doing so and communicate its decision in a Status Determination Statement.

The statement should go to the worker and to the party the client contracts with, such as a recruitment agency. It should include the reasons for the conclusion. The client should also have a process for the worker to disagree with the determination and receive a response.

Assessing status with care

Status depends on the reality of the working arrangement, not just the wording of the contract. Factors commonly considered include:

• Control over how, when and where the work is done.
• Whether the worker can send a substitute.
• Mutuality of obligation between the parties.
• Financial risk, and whether the worker operates as a business in their own right.
• How integrated the worker is into the client’s organisation.

HMRC provides the Check Employment Status for Tax (CEST) tool. Many organisations use it alongside their own review. Whatever method is used, the assessment should be specific to the role and kept on record.

Avoid blanket decisions

A blanket determination, such as treating every contractor as inside IR35, may appear simpler. It can, however, fail the requirement to take reasonable care. It may also make it harder to attract experienced contractors, who often prefer engagements assessed on their merits.

The reverse is equally true. Treating all roles as outside IR35 without proper assessment creates risk for the organisation and the supply chain.

Keep the arrangement under review

A determination reflects the working arrangement at a point in time. If the scope of the role changes, the way the contractor works may change too. A contractor engaged to deliver a defined piece of work can drift into a role that looks more like a member of staff.

Build review points into the engagement. Revisit the determination at contract extensions and whenever the scope materially changes.

Consider the full supply chain

Responsibility for tax and National Insurance can move along the supply chain if a party fails to meet its obligations. Clients should understand who they are contracting with and how payments flow. Using reputable agencies and umbrella companies, and asking appropriate questions, reduces this risk.

Where contractors are engaged through an agency, the Conduct of Employment Agencies and Employment Businesses Regulations 2003 also apply to how the agency operates.

When inside IR35 is the right answer

An inside IR35 determination does not mean a role cannot be filled by a contractor. Many contractors work inside IR35, usually through an umbrella company or on the agency’s payroll. Rates should reflect this, and the engagement should be planned accordingly.

Some roles may be better suited to a fixed-term employee or a temporary worker. The right choice depends on the work, its duration and the skills required.

How we can help

Netox Talent supplies contractors across delivery, technology, change and business support roles. We work with clients to define roles clearly, support a consistent approach to status assessment and engage contractors in a way that reflects the reality of the work.

We do not provide tax advice. We help you build a process that is clear for clients and contractors alike.