Are you ready to prepare IR35 Determination Statements?
Understandably, there is a high degree of procrastination and reluctance to initiate new ventures within UK businesses at the moment. “We’re seeing how things will settle” seems to be a common utterance within recent conversations – and being honest, I can empathize with the notion.
COVID-19, Brexit, a recession, the job market hitting new lows and general uncertainty of daily restriction changes has made 2020 a uniquely challenging year for business heads. I’ve heard from many who are simply in “a state of survival”, i.e. sit tight and let it all blow over.
But the UK has faced turbulence before. We are a resilient nation and we will bounce back to a state of adjusted normality in the near future. Those of us settling for a “hold-fast” approach may be caught unprepared if provision is not considered in relation to upcoming legislation changes.
It is now widely known that IR35 changes will occur in the private sector in April 2021 – all contention and attempts of resistance have been quashed. Now is the time for agencies and end clients to prepare for what is to come. Your business volume may still be at a lull point – not ideal from a revenue perspective – but perfect conditions to strategize and ensure your future models can aide the rebound post-2020.
One aspect to become commonplace is the Status Determination Statement (SDS). This document will be widely referenced by end clients, agencies, umbrella companies, accountants and HMRC. Essentially, an SDS is a conclusive document that is compiled following a thorough review of an individual assignment’s terms and conditions – the parameters of which will identify whether the particular employment falls within or outside of IR35 regulations.
This statement is produced by the end client, but is then used throughout the supply chain and will ultimately determine how an individual contractor can operate within any proposed contract… A pretty important calculation as it is impactful on an individual’s means of generating income.
Why is an SDS needed?
Yes, this new document adds another layer of work for the end client, but it is a necessary process. Without a clearly justified SDS, the status of an assignment would be open to interpretation from all parties involved. There would also be scope for end clients to take the easy option of blanket assessment of assignments under their care… a prospect that is less than fair for the individual.
Essentially the SDS funnels in a very colourful bouquet of contract parameters and ultimately dims the vibrancy in attempt to make them black and white for all to agree upon.
Of course, reasonable care must be taken when concluding and everything must be evidential and justified.
What is reasonable care?
Reasonable care refers to the level of consideration and scrutiny by an end client in reference to their determination of an assignment’s status. Tarring all similar assignments with the same brush would not be a great reflection of reasonable care for the individual – and this is where the determining party needs to tread carefully. Misjudgement can lead to appeal, and if this was caused by a less than thorough approach then the end client could be in the hot-seat to justify their conclusions further… dragging out the administration further and risking multiple challenges from the contractor.
More pertinent are the tax implications involved. If clients are too stringent (or loose) with their determinations then the apportioned tax implications may be incorrect – meaning they or the contractor may be paying an unfair portion due to their determination. Worst case scenario – penalties will be administered by HMRC.
The whole thing sounds complicated, right? You’re not wrong, this is a huge ask of any end client’s HR/personnel department, hence a range of IR35 determination tools have arisen over the past few months.
IR35 Determination Tools
An IR35 Determination tool is generally an outsourced platform that seeks to provide a comprehensive, accurate, justified conclusion of any assignment based on a series of standardized criteria. The government has its own tool designed to help – the CEST tool is available for all registered employers to use, but has faced ferocious scrutiny from many angles with regard to its reliability and accuracy.
Private entities have constructed their own models accordingly, and after much research, we’ve found Optimus Shield to be the most user friendly and accurate for determination purposes.
Optimus Shield uses a collaborative approach obtaining information from all parties involved, contractor, agency, end client.
In a nutshell, Optimus Shield provides justified determination of any contract, produces the SDS on your behalf and is fully supported from legal and tax expert perspective. It also provides comprehensive insurance coverage that mitigates risk to your supply chain and personal protective insurance for the contractor in the event of HMRC investigation. A holistic model that you as an end client can rely upon with confidence.
There are of course other models on the market, but we’ve been working in the industry for some time and we understand the pressures faced by end clients and recruiters when preparing for legislation changes. For us Optimus Shield delivers comprehensively.
If you have concerns or questions regarding your preparedness for IR35 or Status Determination Statements please be in touch – we would be happy to help.