Contractor UK, in an article on 19 November 2019, advises that the “new IR35 legislation is ready to go”.
Contractor tax advisory firm Pendragon Consultancy also believes private sector IR35 reform is now going ahead no matter what, and no matter who occupies No 10 on December 13th.
IR35 in the Oil and Gas Industry
Writing on LinkedIn yesterday, the advisory firm said: “It’s not the government’s decision – it’s the Treasury’s and they are proceeding.”
“Having spent several hours at HMRC on Tuesday, [we can assert that] this legislation is ready to go, as soon as [the] government returns in January whoever wins [the December general election].”
We work with over 600 companies in the UK. At least 200 of those are oil and gas companies, both PLCs and SMEs.
Having met with our clients across the industry, both operators and service companies, the responses so far have been alarming in most cases.
Some operators tend to take the view that this is a service company problem, as they engage the workers.
Service companies appear to have a greater grasp of the regulations suggesting that they need the operators on board to help ensure the right status determination decision.
We do not see anyone taking the lead to bring both parties to the table to facilitate the discussion. If they are doing so, few are listening.
Many companies who claim to have ‘done it’ are using advice and guidance which they received over a year ago from webinars and seminars on IR35. A word of caution, the regulations were published late August 2019 and many have missed those. Since the regulations were published, HMRC have committed to delivering a new version of the online ‘CEST’ tool by year end 2019, working alongside industry experts. HMRC have committed that should the data be entered accurately that they will stand by the decision of the new tool. HMRC have been criticised for the lack of value of the current CEST tool linked on their website, as they do not have to agree to the outcome from the assessment.
In reality, if a company was going to assess a worker correctly to determine status they would in fact have to answer around 100 questions as this is a very multi-faceted test.
Some companies argue that they cannot wait until the year end in the hope that a new tool will arrive. They have instead opted to go with external providers to use their assessment (which will not be validated by HMRC). In cases of high numbers of workers, we understand that the new year may be too late to manage the process and to undertake contingent recruitment for replacement should in scope workers refuse to transfer to PAYE. For those we are supporting with external provider tools. So consider the volume of workers prior to jumping ahead without HMRC’s new tool.
In listing the questions which are required to effectively determine status, one thing becomes very clear. Most aspects of non compliance with IR35 derives from the way in which companies ‘manage’ workers. Some proud of the fact that they treat their ‘contractors’ like staff. This requires a change in culture in the industry in order to engage contractors as the regulations intended, like the tradesperson who comes to your home. They set the time, they set the cost and you don’t supervise their work, they are the expert.
Some contractors are alarmingly stating that there will be a blanket approach to IR35 in that everyone will be deemed in scope. This did not play out well in the Public Sector implementation in 2017 – where there was a mass exodus of workers. We cannot see that as being a suitable response to customers in the industry. Consider how you work with workers and what needs to change. Many in-scope workers could be effectively genuine contractors.
The Practical Guide
No operator nor service company can assess alone. This is not a service company problem as ultimate responsibility for the tax and NI of the worker, should they be deemed in scope is the responsibility of the end user, and I am sorry to say to the operators – this, in most cases, is them.
The operator does not have the contractual documentation and information available to make the full assessment. Likewise, the engager or the service company does not understand beyond the contract how the worker actually performs their services on a client site and to what extent they are controlled and supervised.
Come together, assess together and limit risk. We need HR teams to consider leading change programmes, in ways of working, if we want to retain workers in the industry.
There will likely be a few twists and turns before these regulations are implemented, there may be a delay, there may not, but we must be prepared for what may and is likely to come.