What Is A Blanket Ban?

When similar Off-Payroll or IR35 Reform legislation was introduced in 2017 in the public Sector many organisations blanket banned outside IR35 contracting options so as not to be caught having made risky incorrect outside IR35 determination assessments. This was widely challenged at the time and so is expected to be much less common as we approach 2021 reforms in the Private Sector. End hirers have become more subtle in protecting themselves by offering only PAYE roles.

Off-payroll reform legislation makes it clear that the hirer must take reasonable care in how they go about making an IR35 status determination.

By reasonable care, HMRC means that a hirer must conduct a detailed assessment of the work to be carried out by the contractor (worker). Click here to view HMRC’s definition of reasonable care.

HMRC recommends that any assessment determination must:

• Formalise and record a consistent process.
• Seek professional advice and assistance.
• Involve relevant parties or individuals.
• Use a determination test tool.
• Regularly review determinations.
• Define and communicate a transparent process for challenges.

These changes will increase the administration time and costs for hirers to comply with their obligations. Many hirers will therefore understandably seek not to make any determination at all.

As a hirer, if you only offer PAYE roles you don’t have to worry about performing status determinations or worry about any consequential unexpected tax liabilities if you make any determination assessment errors. Many employers are therefore initially expected to take a cautious approach to hiring, and this approach is likely to result in hirers offering many roles as fixed-term employment, or “inside IR35” contracting roles. Those seeking to fall “outside IR35” will need to offer an outsourced service beyond just a supply of labour, and many hirers will understandably be worried about hiring on this basis.

Poor practices have unfortunately been part of the hiring process within the temporary worker and freelancer contracting chain for a lot of years. Now the hirer can be potentially liable for any bad practices further down the contracting chain they can end up footing the bill. Hence hiring businesses also have other motivations not to entertain risky outside IR35 determinations.

HMRC estimate that “Loss” of taxation (IR35 non-compliance) to the Exchequer would be in the region of £1.3 billion pa in the Private Sector by 2023/24. They estimate there are 650,000 limited company (PSC) contractors in the UK. HMRC estimates that 1/3rd of these PSCs should fall inside IR35 and be taxed as employees and further believe that only 10% of that 1/3rd are actually taxed correctly.

The downside of any form of blanket ban approach from the hirer and or agency is that they may not be competitive when looking to hire contractors, or the cost of the contractor may become much higher and prohibitive, especially where the worker can find other roles outside IR35 for the same or better rates of pay.

This will result in what will effectively for many be “false employment”. However in practice in the current climate as we exit the economic consequences of Covid 19 and nationwide lockdowns many contractors may be happier to accept less than ideal terms and or pay when work could be hard to come by.  The laws of supply and demand will in the end determine which roles will attract higher pay rates and which will result in contractors taking a big hit on their usual take-home payments.

If you have any concerns about IR35, don’t hesitate to get in touch with our expert team on 01244 684700.