The Ministry of Defence, Transport for London, the NHS and even HMRC have all been accused of making blanket or “role-based” IR35 status assessments of contractors since the Off-payroll reforms came into effect in the public sector in April 2017. That is the date when the IR35 compliance burden passed to clients and agencies in the public sector. Some argue that the system has been designed to encourage such blanket assessments by bodies which neither have the capacity to properly assess thousands of workers or want to take on the significant long-term tax risk. The move has seen many contractors being wrongly assessed and incorrectly taxed with no way of appealing against the decision without the toxifying option of litigating against a client. Dave Chaplin is CEO and founder of contracting authority ContractorCalculator and highlights that the legislation's ‘reasonable care’ requirement is a fundamental aspect of the legislation and why blanket assessments are so damaging and dangerous for the UK’s flexible economy.
It is very easy to recognise a blanket role-based assessment that doesn’t adhere to reasonable care. You ask yourself whether the individual has been assessed. If they haven’t, it means that a proper assessment hasn’t been carried out and therefore the reasonable care requirement has not been met.
The consequences cause a whole host of problems throughout the supply chain, most notably, if the reasonable care requirement is not met then the hiring firm retains the tax risk, rather than the agency they use to source the contractor.
What is a blanket assessment?
The legislation states that the client becomes liable for tax if it ‘fails to take reasonable care in coming to its conclusion’ regarding the status of a contractor. Legal experts suggest that reasonable care constitutes making a full assessment on an individual basis.
However, the failure to elaborate on ‘reasonable care’ in the context of Off-payroll has helped to facilitate non-compliance by way of the blanket assessments we have seen which fall into one or two brackets:
- Where a client makes an IR35 status decision without conducting an actual assessment
- Where a client assesses a role to predetermine the IR35 status of contractors
Role based assessments fail to take into account the full factual matrix required to assess the individual’s status accurately and without directly assessing each individual, it is impossible to evaluate the factors applicable to them, the most important consideration being where they are in business in their own right.
Let’s take a hospital recruiting nurses as an example – a nursing agency provides nurses to various hospitals on an as-needs basis. A hospital asks for a grade four nurse and the agency decides who to send. Now, imagine an individual nurse who is considered for the same assignment, yet sources their own work and is in business on their own account.
In both instances, the nature of the work is identical, yet one nurse is likely to be outside of IR35 while the other is indeterminate. If a hospital was to make a role-based assessment – particularly using HMRC’s Check Employment Status for Tax (CEST) tool which has come in for much criticism – there is a strong chance that both will be deemed ‘employed for tax’ purposed. This is why it is essential to assess each individual.
Role-based assessments fail to constitute reasonable care because the assessor firstly assesses a role and then assumes that the set of circumstances identified can be applied directly to anyone who takes on a job. Every employment status tribunal has sought to assess the status of an individual, partly by carefully considering their personal circumstances. A ‘role’ cannot go to court to defend itself and neither does HMRC ever take a “role” to court. In fact, if a tax payer argues that they assumed the status of one assignment to be the same as another HMRC may claim this constitutes carelessness and extend their enquiry window for a full six years.
In a nutshell, role-based assessments spell potential crippling financial disaster for clients. Failing to meet reasonable care has consequences and risks, both tax risks, insurance risks and the risk of investigation by HMRC who may deem the client careless in making its assessment.
However, despite the overwhelming evidence that has been reported widely Government is intent on denying there is a problem with the Chancellor himself claiming that “in the vast majority of cases assessments are being made on a case-by-case basis”. This claim is hotly disputed, particularly in the health sector. In recent minutes from the IR35 Forum meeting HMRC is found to be sanctioning the use of role-based blanket assessments which is wholly inappropriate guidance.
In its current format, Off-payroll exists as an exploitative regime and to protect contractors from excessive taxation under blanket assessments, amendments to the current and any future legislation must:
- Ensure that clients make assessments based on named individuals
- Require that the client explains the basis on which a decision has been made
- Require that relevant information from all parties be shared and considered as part of the assessment
- Allow contractors to appeal an assessment at the point of decision
Unfortunately, as long as HMRC continues to perceive that they are gathering more tax into the Treasury’s coffers as a result of the rules, Government will turn a blind eye and will not make any changes. HMRC is trying to override the law for its own convenience and the Treasury is trying to cover up the fact that the implementation of the legislation was a mess and is still a mess which has seen widespread blanket assessments take place.
The taxman has no powers to instruct organisations to circumvent the legislation by making blanket assessments – it is another example of HMRC abusing its powers in a bid to get the most, rather than the fair and correct, amount of tax into the Government’s purse.
Dave Chaplin, founder and CEO, ContractorCalculator
Image source: Shutterstock/KAMONRAT