Helping the Public & Social Sector navigate IR35

IR35 is still very much in the headlines in the public and social sector, with organisations such as NHS Digital and the Department for Work and Pensions (DWP) facing sizeable charges for underpaid tax and NIC by HMRC.

These charges are the result of a failure by public and social sector bodies to correctly determine the employment tax status of workers engaged via intermediaries, which has been a requirement for public sector bodies under tax legislation since 2017.

These failures are occurring despite the fact that organisations are using HMRC’s employment status for tax assessment tool, CEST. CEST relies on users interpreting the questions correctly. If any questions are answered incorrectly, the wrong outcome could be produced and HMRC will not accept any outcome from CEST that is not accurate. These incorrect assessments are leading to large bills for additional tax and NIC. For example, the DWP has been charged with an £87.5m tax liability.

As well as the ongoing challenge of ensuring that the employment tax status of workers is correctly determined, there was an additional requirement introduced in April 2021, when the rules were extended to the private sector. From 6 April 2021 public sector entities are now required to:

Provide a Status Determination Statement (SDS) to all workers providing services to you via an intermediary (typically a personal service company). The SDS sets out whether the engagement is inside or outside IR35, and how this decision has been arrived at.
Have an appeals process in place to enable workers to appeal to you directly the decision arrived at on the SDS, and then critically review the grounds of the appeal and make a decision on whether this is accepted or not.

This area of employment status is complex

In the absence of specific legislation, it is necessary to consider the criteria for each type of role. The key factors which are considered in such cases include:

Whether the individual is required to provide personal service during the engagement or can send a substitute
The level of control exercised over the worker by the engager
The level of financial risk by the worker during the engagement
Whether there is sufficient mutuality of obligation within the engagement to constitute employment

How we can help

We have therefore been busy helping clients across the sector in ensuring compliance with the legislation, typically helping to:

Use our technology to identify suppliers from an accounts payable system who could be considered intermediaries under the legislation, and therefore require further assessment.
Produce the SDS required under the legislation using our own employment for tax status determination software, providing a more accurate assessment of the likelihood of the engagement being deemed employed for tax.
Critical assessment of current processes in place and recommendations on how controls can be improved to create a more robust process in the event of HMRC review.

Case study

Mazars were engaged by a large NHS foundation trust ("the Trust") that was concerned with its existing processes under specific tax legislation since April 2017. The Trust was concerned that they had not identified all their suppliers at risk of being deemed intermediaries under the wide-ranging definition within the legislation.

Using our technology, we were able to review a total of 20,000 suppliers and we identified that from this list, 10% would meet the intermediary definition. Furthermore, we then reviewed the activities of the 2,000 suppliers identified and, based on the work provided, concluded that 1,500 suppliers were providing contracted-out services and were therefore outside the scope of the tax legislation.

This meant that the Trust had to consider 500 suppliers under the legislation, meaning employment status for tax assessments were made using our bespoke software. Based on the risk scores assessed, we worked with the Trust to consider which proportion of suppliers were required to be paid via the payroll as per the legislation, and which proportion would remain off payroll.

Ultimately, the Trust had adopted clear processes and controls with its IR35 compliance which would demonstrate reasonable care in the event of any HMRC enquiry.

Get in touch

Please do let us know if you wish to discuss further. Our experienced employment taxes team will be more than happy to discuss how they are actively assisting clients in this area.