
Are You Still Up to Scratch on IR35? A Guide for HR and Recruitment Teams
In the current political and economic climate, staying on top of compliance has never been more critical—especially when it comes to IR35. With the new Labour government committing significant resources to bolster HMRC’s investigative capabilities, businesses should brace themselves for increased scrutiny. For HR and recruitment teams, understanding your role in IR35 compliance is essential to safeguarding your organisation from costly tax investigations.
The IR35 Challenge
IR35, officially known as the "off-payroll working rules," is designed to prevent tax avoidance by contractors working as “disguised employees.” These rules ensure such individuals pay the same tax and National Insurance contributions as employees in similar roles. Since changes introduced in 2021, the responsibility for determining a contractor’s IR35 status now lies with the end-user client, making it imperative for businesses to have robust processes in place.
Why HR Teams Are Integral to IR35 Compliance
At first glance, IR35 might seem like a tax or legal issue, but in practice, HR plays a pivotal role. As Penny Simmons, tax expert at Pinsent Masons, explains:
“HR is integral to IR35 compliance within a large business because they are often tasked with liaising with different parts of the business—procurement, legal, and tax teams. IR35 compliance is fundamentally about people and their working relationships with the business, an area where HR excels.”
Here’s how HR teams can step up:
- Facilitating Collaboration Across Teams HR often serves as the bridge between different departments. For example, procurement may handle initial contractor engagements, but HR can ensure that IR35 determinations are aligned with the company’s compliance policies.
- Managing Status Determination Statements (SDS) Once a determination is made—whether a contractor falls inside or outside IR35—HR is often responsible for ensuring that the SDS is communicated effectively. This includes sharing it with the contractor and any third-party agencies in the supply chain.
- Overseeing Dispute Resolution Processes If contractors or agencies dispute an IR35 determination, the business is required to have a client-led dispute resolution process in place. HR is well-positioned to manage these processes, ensuring fair and efficient resolution while maintaining compliance.
Preparing for Increased HMRC Scrutiny
With the Labour government’s pledge to enhance HMRC’s resources, the number of tax investigations is expected to rise. Ignoring enquiry letters or failing to respond promptly can lead to full-scale investigations—an outcome no business wants. HR teams can play a proactive role by:
- Ensuring Accurate Records: Maintain thorough documentation of contractor engagements, including SDS decisions and justifications.
- Training and Awareness: Equip HR and recruitment staff with training on IR35 regulations and the importance of compliance.
- Collaborating with Experts: Work closely with tax and legal teams to ensure the business remains up to date with legislative changes and best practices.
Final Thoughts
IR35 compliance is not just a legal or financial responsibility—it’s a people issue, and HR professionals are uniquely positioned to ensure it’s handled effectively. By understanding the rules, collaborating with other departments, and managing key processes like SDS communication and dispute resolution, HR can help protect their organization from the risks of non-compliance.
The stakes are high, and the potential for HMRC investigations is growing. Don’t let your business be caught off-guard—make IR35 compliance a priority today.