Could IR35 checks expose your organisation to wider problems?

21 April 2023

Andrew Webster - MD, Workwell Enterprise

Andrew Webster

MD, Workwell Enterprise

Labour supply chain compliance has never been more important.

HMRC has been actively enforcing changes to the off-payroll rules introduced in 2021.  However, as we suspected, these investigations are, in many cases, leading to deeper scrutiny of broader labour supply chain compliance.

IR35 compliance is a complex issue so if, like many organisations, you are concerned you are not fully compliant, you hurried your IR35 preparations or are not monitoring compliance closely ongoing, it’s important to take time to review your approach now.

Medium-sized to large organisations that are subject to one of HMRC’s Know Your Customer or Annual Business Reviews where issues are likely to be spotted should be particularly wary.

Non-compliance, as too many organisations already know, can be expensive, time-consuming and reputationally damaging.

IR35 compliance – a quick reminder

IR35 is a set of tax rules that aim to prevent tax avoidance by individuals who work through an intermediary, such as a limited company, but would be considered employees if they were contracted directly.

The application of IR35 rules can be complex, and there have been various updates and changes to the legislation over the years.  The rules were changed for the public sector in 2017 and for the private sector in 2021 so that responsibility for determining whether IR35 applies shifted from the individual up through the labour supply chain, ultimately resting with the end client.

There have been a number of high-profile cases recently where HMRC has successfully claimed damages amounting to millions of pounds from government organisations that have been heavily fined for non-compliance, one of the latest being NHS Digital.

Managing compliance

HMRC’s Employment Status Manual defines the compliance criteria but, like most things, the theory is one thing, and reality is another.

Labour supply chains can be complex and multi-dimensional, so it can be hard to check compliance in all areas.  However, with responsibility for compliance resting with the organisation at the top of the supply chain, usually the end hirer, it’s essential to do your due diligence on every business supplying temporary labour.  This can be a challenge, especially if your recruitment agencies subcontract to other suppliers, as is often the case. It may be that you’re not aware of the compliance risk posed by every link in your supply chain.

Unfortunately, ignorance is no mitigation – there must be checks and balances, correct protocols, to minimise the risk of non-compliance. Transparency of your supply chain is key.

You need to know what constitutes a compliant supply chain, choose your suppliers with care, and manage them with even greater rigour.

 

It’s also key to have a strong audit process in place – an audit that thoroughly checks the most challenging areas and which is undertaken regularly to ensure standards are maintained.

Concerned about your level of compliance?

Demonstrating supply chain due diligence and compliance will mitigate most of your immediate supply chain risk. Addressing any compliance concerns now will contribute to your peace of mind and a more sustainable business for the future.

As specialists in this field, we can provide the audit, compliance strategy and ongoing implementation support your organisation needs, giving your leadership team the assurance needed to know that risk has been identified, managed and mitigated.

Contact the team at Workwell Enterprise, to find out more about how we can help.

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