Under the off payroll working rules, organisations engaging with contractors via intermediaries (usually personal services companies) have to decide what the contractor’s employment status would be for tax purposes, if they had been engaged directly.  If they decide that they would have been employed (known as ‘inside IR35’), then the fee paid to the intermediary is subject to employment taxes and levies.

Many organisations use HMRC’s CEST (Check Employment Status for Tax) tool to make that status determination because HMRC has stated that it will stand behind the CEST outcome, provided the given answers are accurate and the arrangement is not contrived. Organisations can use other tools for making the status determination but must take ‘reasonable care’ in doing so. HMRC’s Employment Status Manual makes clear that an organisation using the CEST tool will be viewed as taking reasonable care when making status determinations. 

However, contractors have argued that the CEST tool does not accurately represent the law on employment status because the tool assumes that one of the key requirements of employment status, mutuality of obligation (MOO), will always present once a contract is entered into. In other words, they view the CEST tool as being weighted to determining contractor status as being inside IR35.

The Supreme Court may well have kicked that argument into touch in its decision HMRC v PGMOL about the employment status of football referees by deciding that MOO is essentially the wage/ work bargain and will exist where a contract to provide services is entered into, even if there is no obligation between the contractor and organisation to enter into the contract in question (i.e. no overarching agreement) and either party can bring the contract to an end unilaterally.

Those organisations who may have relied on the absence of MOO to determine that contractors fall outside IR35 may now wish to review those status determinations. Status determinations should be reviewed in any event when contracts are renewed or circumstances change.

HMRC’s guidance on good practice Help to comply with the reformed off-payroll working rules (IR35) also advises employers to conduct regular audits of systems and processes in place to operate the off payroll working rules as well as to ensure that all of those involved in making status determinations or gathering information to support decisions, should have training about:

• the off payroll working rules;
• what is required of different parties in a contractual chain; and
• how to understand employment status principles, to make an accurate determination.

If you would like more information on how Burges Salmon can help with ensuring your organisation complies with the off payroll working rules or would like more information about the training available on the employment status principles, contact me Annelise Tracy Phillips or your usual Burges Salmon contact.