Public sector bodies must take ‘reasonable care’ with IR35

A new clause has been entered in updated IR35 legislation, which instructs public sector bodies to take ‘reasonable care’ when determining the IR35 status of a contractor from 6th April 2017.

If the public sector body responsible does fail to take ‘reasonable care’ they will be required to become the ‘fee-payer’. This means it will become the public sector body’s responsibility to deduct PAYE and National Insurance from the contractor’s salary, as well as for paying Employer National Insurance.

As a public sector body you will also be forced to shoulder this responsibility if you fail to communicate your verdict on an individual’s IR35 status within 31 days.

The ‘reasonable care’ clause, which was announced in the Finance Bill 2017 on Monday, was defined by Qdos contractor as: “[ensuring] every contractor engagement is considered independently and fairly”.

However other accountants have acknowledged the vague nature of the phrase. Brookson expressed the difficulty to outline ‘reasonable care’, when they said it was “not easy to define”, and instead loosely translated reasonable care to mean ‘to take a prudent approach’.

Seb Maley, CEO of Qdos Contractor, said: “Regardless of whether public sector bodies decide contractors ‘inside’ or ‘outside’ IR35, having a clear audit trail and input of both the contractor and client in the process is [going to be] vital.

“Wrongly placing contractors inside IR35 will come at a significant cost to contractors themselves, with public sector bodies and agencies suffering too if a lack of care is taken.”

On the topic of HMRC’s Employment Status Service, Maley said: “Serious concerns remain over the effectiveness of HMRC’s IR35 tool”.

He added: “without in-house IR35 expertise, the immediate concern is that public sector clients are simply not equipped to make [the necessary status] decisions”.

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