Construction firms should be on their guard against complex schemes that promise to protect them from IR35 liabilities, according to Hudson Contract.
The off-payroll working rules known as IR35 came into effect in April. They are specifically designed to leapfrog employment businesses and other intermediaries by transferring tax liabilities from individuals to end-user clients.
Ian Anfield, managing director of Hudson Contract, said: “We have seen evidence of employment businesses (recruitment agencies, payroll providers, so-called commercial contractors, and CIS compliance companies) claiming they can wave the new rules away by introducing a few checklists and other bits of paper when in fact all they are doing is making things worse for their clients.
“One high-profile outfit even promotes its confused solution by claiming it has taken out insurance for itself to cover being investigated by HMRC. It would appear that other employment businesses either don’t understand IR35 or are deliberately misleading people over its scope to scare businesses into using them when in reality they offer no protection whatsoever.”
The telltale signs of dodgy schemes:
- Any employment business which claims it can relieve you of any liability under IR35 or suggests that sole traders are caught up by IR35 along with limited companies is telling you porkies.
- If a company which does nothing but pay your operatives pretends to be a commercial contractor providing construction services, you should steer well clear.
- If as part of its solution the employment business asks you to issue Status Determination Statements (SDSs), you should walk away because it is making sure the liabilities sit squarely with you and this could leave you with a VAT bombshell to deal with later.
- If a company says it is a contractor providing construction services for the purposes of VAT and to avoid agency regulations, but then asks you to issue an SDS, you should smell a rat.
- Many of these providers are contradicting themselves: they cannot be the end user when it comes to the VAT domestic reverse charge or OEI but not the end user for IR35 purposes. Asking clients to issue the SDSs gives the game away and exposes these sham schemes.
- Some employment businesses are hoping to avoid scrutiny by relying on HMRC’s promise to apply a ‘light touch’ to end users making genuine attempts to comply with the new rules. But this must not be taken out of context because what these firms offer is not a genuine attempt to comply. HMRC has already started compliance activity and users of schemes will not be exempt.
- HMRC has made it clear the introduction of IR35 is not an amnesty for contractors who have paid no tax for many years. Individuals who have used limited company status to abuse the tax system have liabilities going back six years and HMRC will investigate these individuals to recover its losses.
Hudson has now helped dozens of large and medium sized clients deal with the new IR35 rules to ensure compliance. Sole-traders, who are not the targets of IR35, have been largely unaffected, and clients can now return their attentions to running their businesses rather than worrying about new regulations.