UK businesses should train HR professionals on IR35, says tax lawyer

Last week we highlighted the rise we’ve seen in the number of HMRC investigations into businesses IR35 compliance processes and why it’s vital to respond to any correspondence from the Revenue promptly, which will help minimise that risk. A lack of response, or a rushed reply, can set hares running at HMRC and could, in a worst case, give rise to a full-scale investigation by the regulator which would be a rigorous, time consuming, and often a stressful experience for all those caught up in it. Given that correspondence will often land on the desk of HR it begs the question would HR recognise its significance? On the wider point, does HR understand the scope of the off-payroll tax laws and the potential impact on the business of a breach? 

A reminder. IR35 is the tax legislation designed to counteract tax avoidance by taxing ‘disguised’ employment at the same rate as would apply in an employer/employee relationship. It is used to assess whether self-employed individuals or contractors are working genuinely with that status, or if they are working as ‘disguised’ employees, with all the same responsibilities as a full-time employee, without having to pay the same tax and national insurance. The responsibility for making that determination now lies with the end-user client.

As an HR professional watching this programme you might think that correspondence from the Revenue - a letter or questionnaire, typically - asking about the tax status of your contractors would be a matter for tax or legal. You might even question whether IR35 should be on the HR agenda at all. Well, in our view it should be, at least for large employers where the consequences of non-compliance can be costly fines and/or serious reputational damage. 

So, what training, if any, should HR be getting when it comes to IR35? Our tax lawyers at Pinsent Masons often work closely with the client’s HR team and training is part and parcel of the service they offer. So, what does the training involve? It’s a question I put to tax specialist Penny Simmons:

Penny Simmons: “What I would suggest is that training should have certain components. First and foremost, the training should reflect what the businesses processes are around onboarding contractors who might fall inside the IR35 rules. So those within the business who are going to be involved in identifying PSC contractors, making IR35 status determinations, issuing status determination statements, being involved in the contractual process with third parties and PSC contractors, a whole host of functions. Those people within the business, those employees within those teams, they need to understand what those processes are. Now, I don't know what those processes are because they'll vary from business to business, but those processes need to be very, very, very clearly communicated with a good level of understanding across the business to people who are going to be involved in implementing those processes. Then the other piece of training that I think is particularly important is around making status determinations. Now, ultimately, that can be a very complicated area. We know that the Revenue has the CEST tool, we’ve talked about the CEST tool before and we also know that in a large number of cases the CEST tool may not be able to make a determination so those within the business, or they may seek external advice, are going to need to make determinations and use an element of judgement and they really need to understand the law and what the factors are that make somebody an employee for tax purposes, or not an employee for tax purposes. That’s much more detailed training and that's more bespoke training, and it’s that kind of training that, yes, as a tax lawyer I would get involved in delivering, but it would not be to a huge number of people, rather it would be to people within the business who are going to be involved in making those determinations. So, I think it's two levels of training. Exactly what's involved depends on the business's processes, but it's making sure that the training is relevant to those working in the business so really reflects what the business is doing to manage IR35.”

Last week Penny talked to this programme about the key role HR plays in ensuring the business complies with the UK’s off-payroll working legislation. That’s: ‘HR integral’ to IR35 compliance in large businesses’ and we’ve put a link to it in the transcript of this programme for you.

LINKS
- Link to HRNews programme: ‘HR ‘integral’ to IR35 compliance in large businesses’