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IR35 reforms and the invisible impact that no one’s talking about

Adam Topham Director - 34square Ltd

After Kay Adams was victorious in her dispute with HMRC due to a conclusion she was in business on her own account, the concept has been seized by many and elevated as some sort of golden ticket to an outside IR35 status.

Yet the conclusion was the result of a retrospective interrogation of her business affairs in a regulatory context that on 06 April 2021 was rendered largely redundant. HMRC doesn’t want to win disputes anymore. They want their revenues to legitimately flow without having to go to tribunals to make it happen.

Why are so many clients reluctant to embrace outside IR35?  I very much doubt it’s because they don’t want to lose in a HMRC dispute.  Far more likely is they never want to find themselves in an HMRC dispute over their contractor engagements.  So, what does that mean?

What many experts, recruiters and contractors seem to be less than fully aware of, is that the shift of responsibility for status determination to the client, brings with it for those impacted medium and large enterprises, a profound alteration in the main purpose of any assessment process or derivation of contractual terms and working practices.

For more than two decades, the principle reason for contractors to concern themselves with such matters has been one of a defensive and retrospective nature.  It’s been all about what happens if HMRC comes knocking on your door.  It’s been about assessing in fine detail, normally a historic engagement, in which all of the actual working practices could and would be interrogated.

Now, clients must be the architects of the building, not the safety inspectors after the fact.  They are obligated to design the contractual terms and working practices in advance.  Many will need to be shown how to erect an indestructible building, if they are to be persuaded to shift their thinking.

Some of the more detailed questions and deliberations that may have occurred in the past simply can’t be reliably entertained as status determination drivers BEFORE an engagement has even begun.  Many were situational or even behavioural in nature.  Actual degrees of autonomy, financial risk or part and parcel aren’t necessarily entirely predictable at the outset.

Further, such factors can change through the life of an engagement.  Being in business on one’s own account was a last-ditch clincher for Kay Adams, based upon extended and in-depth exploration of historical fact.  It wasn’t and isn’t a firm foundation at the outset.

It’s also why I keep observing that the notion of assessment questionnaires has been rendered entirely odd.  The main reason assessments in the past have been questionnaire-based is because there wasn’t a coherent status determination process prior to an engagement starting.  Therefore, it was entirely relevant to examine the reality of contractual terms and working practices by asking questions about what had happened or was happening.

If I were about to take the elevator to the fiftieth floor of a new high-rise, I’d want to know that the building, and indeed the elevator, had been conceived, designed and built to known and exacting standards, rather than the intended approach being marked out of ten by a mysterious assessment process.

Perhaps the very existence of the IR35 assessment industry is a self-perpetuating source of angst and doubt for many clients, even whole industry sectors?  The result of which is a bonanza for umbrella companies, to the detriment of true industry value.  It will fuel an inevitable erosion of a flexible, agile talent pool that has been hitherto of immense value to British industry and the economy.

What clients and British industry need and what they should demand is a set of known and exacting standards by which to engage their contractors outside IR35 with regulatory compliance and peace of mind.  The inescapably firmest foundation for this particular building is most certainly not being in business on one’s own account.

There is a firm foundation upon which clients and client managers and leaders can make value-based and not fear-fuelled decisions about how to engage contractors.

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