Following the Off-Payroll rules passing the IR35 compliance responsibility to contractor clients and agencies in the public sector, blanket assessments where contractors are assessed based on a role have become common. This has resulted in many contractors being unjustifiably taxed as though inside of IR35.
The Off-Payroll legislation contains a ‘reasonable care’ requirement. However, its uncertainty has helped HMRC in encouraging many public sector hirers to conduct blanket, or ‘role-based’, assessments that don’t comply with the rules, yet increase tax yield.
The three main reasons why blanket role-based assessments are dangerous are:
- They do not constitute ‘reasonable care’– They breach a requirement of the legislation section 61T(6)(c), resulting in the tax risk passing back up to the hirer from the agency (‘fee-payer’).
- Insurance underwriters will not cover the tax riskunless an individual assessment has been conducted, and agencies do not wish to take on uninsured risk.
- If investigated by HMRC, an inadequate role-based blanket assessment could trigger an extension of the enquiry window to six years due to ‘carelessness’under Section S36(1) TMA 1970. If the error was deliberate this could extend to 20 years (S36(1A)). Individual assessments should limit enquiries to only four years.
It has been reported that HMRC have acknowledged that status decisions are being made without a an appropriate review of each assignment. HMRC has attempted to downplay the issue, estimating it to be only 10% of the time. However, this is an alarming admission given its imminent plans to extend the Off-Payroll rules to the private sector in April 2020.