Paul Battye, Chief Executive of Hoffmann Reed, explains why, with the introduction of IR35, there has never been a more important time for organisations to ensure they choose the right interim management provider.
Interim managers are ideally placed to help organisations achieve their strategic objects in a fast and efficient manner. However, the 2020 IR35 reforms have left many organisations wary of hiring interims for fear of falling foul of the regulations.
What is IR35
IR35 isn’t new. IR35 was first introduced in 2000 with the aim of addressing what HMRC perceived as tax avoidance by contractors who were otherwise treated as employees and this is still the case today.
Prior to the announcement of legislative reform in the 2016 Budget, it was the responsibility of individual contractors to determine their IR35 status. From 6th April 2017 it became the responsibility of the end client to determine the IR35 status of contractors in the public sector. This also applies to the private sector from 6th April 2020. As such, organisations must ensure that they engage with contractors in the correct way to stay compliant.
Determining IR35 Status
Many organisations have indicated that they will apply a common IR35 status determination for all contractors. However, this could land you in court as this catch- all approach is unlawful and will severely limit your ability to access specialist talent. Therefore, it is essential that you get your IR35 status determinations correct.
There are several areas HMRC will look at when you determine IR35 Status.
Supervision and control
When you hire a mechanic or plumber or builder you don’t expect to tell them how to do their job. However, you would probably agree a project plan upfront with key deliverables attached to payment. Interim managers should work on the same basis to stay outside of IR35.
Right of Substitution
The right of substitution means an interim must have the right to substitute their services for that of a similarly qualified individual. Naturally you as a client have the right to say no to the substitute if they are not properly qualified. However, personality or cultural fit is not a reason for rejection. Personality and cultural fit suggest that the interim is being hired as an employee rather than for the service they provide.
In order to stay complaint with IR35 regulation you must ensure that an interim manager uses their own equipment such as laptop and mobile phone. They should also not have business cards stating that they work for your organisation.
Mutuality of obligation
When hiring an interim you should be clear about the project or task, they have been brought in to do. Once the project has finished, the interim manager should generally part company with your organisation and seek a contract elsewhere. On occasion you might want to keep the contractor on to do another project. This is allowed; however, you should ensure that you have a new contract drawn up outlining the project they are to work on. If there is any obligation for the interim to be given another project at the end of the one they are working on, then they will likely be seen by HMRC as employees rather than contractors.
Seek professional advice
The information in this article should be used for guidance only and is not intended as legal advice. Specialist advice should be sought to ensure you get your IR35 determination correct.