Recruitment agencies will be the parties viewed as being responsible for any unpaid tax as they’re considered the ‘fee-payer’ in the updated IR35 legislation, which is a huge burden to carry.
Therefore, agencies understandably may now want to carry out their own due diligence to ensure the Status Determination Statement (SDS) document is a true representation of the status.
The legislation does present proactive agencies with a fantastic opportunity to approach their end clients, not only with a solution where the due diligence on contracts and working practices has been undertaken, but also one which would give the end client all the information needed to create a valid SDS to issue to the relevant parties.
We look at four key points that recruitment agencies need to understand to protect themselves from the IR35 legislation.
1. What do recruitment agencies need to be aware of?
The legislation means increased responsibilities for agencies, especially if your contractors are caught inside IR35.
These responsibilities include:
• Administering the IR35 status decision
• Providing an appropriate contract as a result of the SDS
• Deducing any NI and Income Tax where appropriate in-house
• Charging the client if Employer NI is due (if the engagement is within IR35)
• Paying the contractor net as opposed to gross invoice value
• Paying the taxes deducted to HMRC
• Reporting these taxes to HMRC
2. We are the recruitment agency closest to the client. There is another agency beneath us in the chain which engages the contractors. What IR35 obligations do we have under the new proposals?
As the agency closest to the client, you will receive the SDS from the client. It is your obligation to pass this SDS down the chain to the agency beneath you. If you fail to pass this SDS down to the agency beneath you in the chain, then you will effectively stand as the fee-payer (with the associated potential liabilities) until the SDS is passed down.
3. We’re the recruitment agency dealing with contractors and understand we are the fee-payer. What is our exposure if HMRC decide an engagement is caught?
Assuming you have received an “outside of IR35” SDS and have been paying the contractor gross, if HMRC subsequently challenge this then, as the fee-payer, you are the party who is primarily liable for the unpaid tax and NI which should have been deducted.
Therefore, it is your agency that will need to defend the IR35 position in the event of an HMRC enquiry.
This may seem unfair given that it is the client who made the decision, but this is how the legislation is worded.
The end client may become liable if it did not take reasonable care making the decision regarding IR35, but in most cases the liability will rest solely with the fee payer.
4. How can I protect my business and ensure I have taken the right due diligence?
Markel Tax have been advising and defending clients against IR35 challenges since the introduction of the legislation over 20 years ago.
They offer a complete package of due diligence services to ensure you are well prepared and protected.
The FeePayer Protect insurance product that Markel Tax offer is specifically designed to defend against an HMRC enquiry and even the potential tax losses where you are also the fee payer.
What’s more, Markel Tax are able to provide the whole supply chain from end-client through agency to the contractor, support in drafting an SDS as well as training and on-going support from their tax experts.
The original article can be read at https://www.markeltax.co.uk/industry-news/ir35-what-recruitment-agencies-need-to-do