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Eliminating IR35 Risk in 2 simple steps

We recognise that perceived risks and liabilities associated with IR35 are often a barrier for companies engaging Limited company contractors, despite the significant benefits they offer.

However, did you know it is possible to eliminate all risk of engaging contractors outside IR35 by taking just 2 simple steps?

On this page, we’ll explain exactly how we help companies take advantage of IR35, removing the risks with our HMRC compliant process.

Engaging Outside IR35: The benefits

Working with contractors outside IR35 represents a huge opportunity for companies to gain a competitive advantage.

Engaging contractors outside IR35 compliantly is c.30% cheaper for the Client (a typical saving of £25,000 per contractor annually, saving £millions off your bottom line), the undeniable difference is also the superior calibre of contractor you are able to attract, and your ability to retain them. This all positively impacts company performance.

However, the converse is also true, if you try to engage contractors inside IR35, the chances are you’ll struggle to find them, to retain them, and you’ll pay a huge premium, often for sub-calibre candidates.

But what about the risk and liability of working outside IR35 with Contractors?

For many Companies, risk has been the main barrier to working with Limited contractors. Since the April 2021 reforms, many companies have adopted overly risk-adverse policies, restricting their use of Limited contractors to a minimum, in some cases outlawing them completely. HMRC themselves expect 66% of Contractors to be compliantly working with their Clients outside IR35, but the Private Sector has yet to work out how to and is way behind.

Did you know there are 2 simple Legal steps you can take that would enable your Company to work with Ltd Contractors outside IR35, entirely risk-free?  

We’ve created an infographic to illustrate this: 

Step 1: Satisfy HMRC’s ‘reasonable care’ requirement

The law is clear, if you satisfy ‘reasonable care’ with your management of IR35, you pass all the risk and liability of working with contractors outside IR35 to the ‘fee payer’, the company that actually pays the Ltd contractor’s bill. Invariably this is the MSP or Recruiter, however we also work closely with Partners that provide this specialist service for low cost fees.

What is reasonable care and how do you satisfy it?

It’s perfectly achievable, with some effort. There should be strong motivation to do so.

If you’re a large company (£100m+ turnover) it’s unlikely you’ll be able to satisfy reasonable care by choosing solely to manage IR35 internally, unless you have legal qualified IR35 resources supporting each and every contractor engagement. You can find the supporting case law explanation in the link to my detailed legal explanation (below).

Reasonable care involves end-to-end management of IR35. This goes beyond basic inside/outside assessments, it requires contract drafting, SOW creation (as outside IR35 contractor assignments must be structured as such) and strict monitoring for compliance throughout the assignment. Failure to do all of the above and you won’t be ticking the required boxes.

The easiest solution to satisfying reasonable care is to involve or outsource IR35 management to IR35 Legal Specialists. HMRC specifically state ‘using a professional qualified advisor’ constitutes reasonable care, but they must be directly involved in each and every contractor assignment. Our unique Managed Service provides this for clients, very affordably, taking care of the entire headache for our clients.

Should companies try to manage IR35 internally?

Self-managing IR35 internally brings inherent risk. As Defra, Ministry of Justice (MoJ) and the Home Office discovered, self-managing IR35 fails to satisfy HMRC’s view of reasonable care, leaving them exposed. MoJ themselves incurred a £15m penalty simply for failing to manage IR35 correctly, despite using HMRC’s own CEST tool for the determinations.

A key learning is the vulnerability caused by use of CEST, or indeed any IR35 assessment software tool. It’s shown to be a high risk approach for two key reasons:

  • It can be easily manipulated. It doesn’t take a rocket scientist to work out if you put certain answers in, you’ll get the result you may desire. HMRC are very aware of this, if the reality doesn’t match the answers, it’s not worth the effort.
  • The Contract is the key ingredient, but CEST (or other tools) have no sight of this. In our experience of HMRC’s inquiries, the Contract & SOW is their first port of call, not an SDS. They’ll then turn to the working practice reality, which again software tools don’t control.

 

In our experience, IR35 can only be managed safely with hands-on depth of legal knowledge applied. Each and every contractor assignment has it’s own set of nuances, it’s important to assess these correctly whilst then ensuring the paperwork matches the reality and is monitored for change control.

Step 2: Ensure a 3rd Party always pays the contractor

Subject to satisfying reasonable care, you’re now able to pass the liability and risk over to the 3rd party, whether MSP, recruiter or payment provider.

If you are sourcing a % of your Limited company contractors directly, consider redirecting them via the 3rd party to pay them for you, in order to pass over the risk.

In reality, there is no significant IR35 risk to pass over. If you manage it correctly, with watertight contracts and a change control process, HMRC will find no scope to challenge. However by satisfying Steps 1 & 2, you will eliminate all your risk anyway. You can engage self-employed contractors safely, reaping the productivity and cost benefits.

IR35: The time to adapt is now

HMRC themselves state 66% of contractors should be compliantly working with their clients outside IR35.

The current reality is very different, many private sector companies taking an overly risk-adverse approach, lead primarily by a lack of IR35 knowledge, which is understandable. Companies need to adapt to IR35, to learn to work differently with self-employed contractors, to revert from an Employer-Employee approach to a Client-Supplier approach. This is all achievable with our expert help and guidance. 

The flexible workforce is an integral part of any successful company. Contractors are a key ingredient to success, forward thinking companies now need to take the steps to adapt, the benefits are unquestionable.

It can also be 100% risk free.

Eliminating The Outside IR35 Risk:
The Legal Evidence

Read our founder Martyn Valentine's legal guidance on working outside IR35 with Limited company contractors.

About IR35 Pro

At IR35 Pro we offer a unique Legal Managed Service to eliminating the outside IR35 risk for our Clients. Our service exceeds HMRC’s ‘reasonable care’ enabling you to take full advantage of the opportunities that IR35 offers.

Our Founder, Martyn Valentine, is considered the most experienced Legal specialist on IR35 in the UK. He designed the process and workflow to ensure robust management of IR35, whilst Martyn himself also provides legal defence of any assignments we manage as part of our all-inclusive offering.

We charge a modest per day cost, spread across the duration of the contractor assignment. Typically our fees have a positive ROI cost benefit for our Clients, whilst allowing them to rest easy in the knowledge that IR35 is no longer the issue it once was.

The IR35 Client Protection Guarantee provides full risk cover for client, recruiter and contractor for all assignments managed.

Our service is comprehensive, exceeding HMRC’s standards for reasonable care. For peace of mind, our fees include full risk cover for both HMRC inquiry legal defence and associated resulting costs incurred.