How to decide which IR35 tool is best for your business
Off-payroll IR35 laws are coming into force in April, and end clients and recruiters need to act now to prepare. Under the new reforms, medium- and large-size businesses in the private sector must now assess each contractor engagement to see whether it falls inside or outside IR35, and produce a written “status determination statement” (SDS) to support this decision. This blog outlines the pros and cons of some of the most popular types of status tool that end clients and recruiters can use to evaluate contractor relationships.
Who is responsible for status determinations?
For medium and large-size private sector businesses and all organisations in the public sector, the client is responsible for producing a status determination. The client, according to HMRC, is the “organisation who will be receiving the services of a contractor” - what we would usually call the end client or hirer. The law also states that “you must take reasonable care when making a determination”. This means that end clients can’t rely on blanket decisions or asking your contractors to assess themselves, although we do, of course, recommend that you consult with your contractors throughout the process and use their evidence to support your decisions.
For recruiters, although you are not directly responsible for producing status determinations, end clients and contractors are both likely to want support with the process, and it would be a good idea for you to have your own systems in place to advise upon, and double check, status determinations. This is particularly important as the responsibility for paying PAYE tax and National Insurance (NI) contributions that might arise from a worker being deemed inside IR35 lies with the “fee payer”, that is, the organisation that directly pays the contractor’s personal service company. Sometimes this will be the end client, but in many contractor engagements it is the recruitment agency. HMRC have promised a “soft landing” approach for the first year of the reforms, which means that there will be no fines or penalties for businesses who make a status determination that is found to be incorrect, but they must still show that they took the “reasonable care” that the legislation demands - and the tax liabilities will still apply. A status tool can help you make an evidenced case that you took time and sought advice to make an accurate decision.
How do I check the status of a contractor engagement?
There are a few different types of “status tool” to help contractors, recruiters and end clients assess the IR35 status of a contract and working relationship.
Check employment status for tax (CEST)
CEST is HMRC’s very own tool, and is a popular first port of call for anyone looking to start the process of assessing contractor status.
Pros: It’s free to use, and you can progress through the questions fairly quickly.
Cons: We find it throws up lots of indeterminate results, and if you get an indeterminate result, you’re instructed to call HMRC. Most end clients and recruiters would prefer to have independent advice on issues like this. HMRC has also refused to stand by the determinations made by the tool in some IR35 tribunals, which is a worry for end clients and recruiters relying solely upon its results.
Verdict: We don’t rate this tool and wouldn’t recommend it to our partners. You can find out more details as to why in our blog ‘Why CEST isn’t best’.
Fully automated IR35 status tools
Fully automated IR35 status tools usually rely on online questionnaires. These typically have more questions than the CEST tool, and may provide more nuanced results, provided they have been designed by people with appropriate expertise in IR35.
Pros: With fully automated solutions, you get your response quickly, which is good if you need to secure a contractor’s services quickly.
Cons: Again, any system relying on a rigid set of questions will likely throw up some indeterminate results, which then slows down your process. To gain the required depth without involving a human expert, questionnaires can be lengthy, which will be time consuming if you have a lot of contracts to assess. Some tools then charge you extra to see in-depth advice about the contract and working practices.
Verdict: A quick fix might seem like just what you’re after, but if your contracts are complex or borderline, you may find yourself stuck having to seek more in-depth advice anyway, which risks further delay.
Fully manual IR35 status tools
In a fully manual IR35 status tool, every contract is assessed by a human professional to create a status determination. There are only a handful of providers on the market offering this level of service and in the run up to April we expect to see them being very busy.
Pros: The bespoke service of a fully manual status tool makes sure that you get no indeterminate results, and a professional eye on every single case.
Cons: A fully manual service will take longer to produce a result than an automated or semi-automated system (often 10 days or more), which may result in the contractor that you had lined up moving on to their next assignment. They also tend to be pricier, and as the April deadline draws ever closer, fully manual status tools may be unable to keep up with demand.
Verdict: While you may appreciate this level of scrutiny on complex cases, this is probably overkill for straightforward engagements and is not a cost-effective way of working, especially if you engage a lot of contractors. If you anticipate that your contractor engagements are complex or borderline cases, a fully manual service might suit your needs, but beware of delays.
Introducing our alternative: the Kingsbridge Status Tool
Kingsbridge have been supporting contractors for nearly 20 years, and we wanted to make a tool to help them, and the other vital parts of the contracting supply chain, safely weather the storm of IR35 reforms.
- Hybrid solution
- An automated tool with 29-34 carefully worded questions
- Expert manual review of borderline IR35 cases - and any other contracts that you’d like our dedicated IR35 legal team to take a second look at
Our unique hybrid solution offers a mix of automated and manual tools to assess contracts quickly and with expert insight. End clients and recruiters can enjoy the best of both worlds: your own branded automated IR35 tool with a set of tailored questions written by IR35 experts, with manual review by an IR35 professional for complex and borderline cases. This means a speedy turnaround with no more indeterminate results. We can also offer IR35 training for your staff and support your package with IR35 Protect insurance that covers all parties in the contracting supply chain. We’re constantly updating the tool, not just to stay in line with current legislation and case law, but also to offer new features that clients tell us they’d love, such as our new dispute resolution tool and ability to bulk upload your contractor information.
If you’d like to book a demo and find out how our IR35 status tool can support your business, just drop your details into our website today.