Recent HMRC actions against fraudulent tax avoidance payments show the importance of knowing any IR35 risks in the supply chain. Crawford Temple explains.
HMRC received a freezing order in December 2024 against a company that supplied healthcare workers to NHS, resulting in a total of PS171,000,000 in unpaid national insurance contributions.
This case has caused ripples in the contractor market and also threatens the development of “copycat” schemes that could be risky, targeting displaced workers. It has shown end-hirers that they need to know who is working with them throughout the supply chain and understand their responsibilities go beyond just hiring talent.
In the IR35 legislation, which came into force in 2017 for the public sector in 2021 for the private sector, the employer is responsible for compliance. At the core of this responsibility are Status Determination Statements.
Employers must ensure that SDS are accurate when engaging contractors. They should classify workers correctly based on whether they fall within or outside of the rules. This decision must be made based on an in-depth assessment of the working relationships, and not on convenience or preferences.
If you fail to provide an SDS, others in your supply chain may make their own decisions and prioritize financial gain over compliance.
Strict parameters
To protect yourself from potential liability, you should set up strict criteria for your recruitment partners. Businesses should implement requirements that contractors only work with providers who have a proven track record.
Many organisations specify minimum operational timelines and financial stability for these providers. This ensures they are engaging with legitimate, established businesses, rather than newly formed entities that exploit regulatory loopholes.
Contracts with recruitment partners should clearly outline the compliance expectations. The agreements should clearly state that the company, as the client, has the ultimate control of compliance standards across the supply chain.
The recruitment companies must also be aware that the relationship they have with their clients depends on them adhering to all of these standards.
Understanding the risks
Beware of schemes that claim to have performed “blanket assessments”, which conveniently lead to “outside” decisions.
A proper determination of status requires an individual assessment for each engagement, based on the specific circumstances. Gross payment arrangements can tempt workers into following the advice of scheme operators who may not be entirely accurate, particularly if they think that their tax obligations lie elsewhere.
In the same way, PAYE arrangements need to be correctly structured in order to avoid accidentally triggering requirements of off-payroll legislation.
The business or the recruitment partner could be subject to substantial financial penalties if they fail to follow the correct determination process. The appeal of immediate savings can often be masked by the much greater risks that come with non-compliance.
Conduct regular audits
This responsibility does not end with establishing initial compliance. To verify that contractual obligations are being met, it is essential to conduct regular audits with recruitment partners.
The reviews should include a check to see if SDSs have been issued correctly, if payment structures are appropriate, and if documentation is accurate and complete.
The audit process must include consequences for noncompliance. Although maintaining good working relationships with your recruitment partners is essential, protecting the organization from liability should take priority. Partner who fail to comply with compliance standards consistently are a risk that can’t be ignored.
“Beyond formal processes and contractual requirements, it is important to foster a culture of compliance in the entire organisation.”
It can be difficult to navigate the complex laws surrounding off-payroll work without specialist knowledge.
Engagement with IR35 specialists can protect you from unintentional violations, provide the proper determination process, review your contract structures and identify vulnerabilities in your existing arrangements.
The investment in expert advice is also minimal when compared with the cost of HMRC fines, unpaid taxes and damage to reputation resulting from non-compliance.
Culture of compliance
It is important to foster a culture of compliance in the organization, beyond formal processes and contractual obligations.
Make sure that the hiring manager understands the importance of accurately determining the status and the risks involved in circumventing the proper procedures.
Compliance considerations can be embedded into everyday operations through regular training and internal guidelines, rather than being treated as an occasional administrative requirement.
To meet the current HMRC guidelines on off-payroll work, organizations that are affected should “provide robust training for employees who need to understand and apply the rules”.
Make compliance capabilities the primary selection criteria when engaging new recruitment partners.
Even if they are not the lowest priced, partners who have a robust compliance infrastructure will add value because it reduces risk.
End-hirers must be vigilant in the current regulatory environment. You can protect your organization while retaining the flexibility you need by understanding your obligations, setting clear requirements for your supplier chain, conducting regular checks, seeking professional guidance, and cultivating a culture that promotes compliance.
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