Does delayed IR35 reform pose CCO risk?

Businesses should consider the impact of delayed reform on their corporate criminal offence risk

Reform to IR35 in the private sector has been delayed by one year and will now be enforced on 6th April 2021. The changes will result in medium and large businesses becoming responsible for determining the IR35 status of contractors, with the fee-paying party being transferred the liability.

Given contractors will keep control of their IR35 status for 12 more months, there is a possibility that those who have been placed inside the rules by their hiring organisation will now transfer to outside the scope of the legislation.

To a degree this is already happening and it is likely that it will continue to. As a result, hiring organisations and recruitment agencies have asked if they are at risk of breaching the Corporate Criminal Offence (CCO) legislation, which is in place to stop businesses facilitating tax evasion.

Does this pose a risk to businesses?

Theoretically, yes. The CCO legislation impacts all parties in the supply chain. If a contractor who has been deemed inside IR35 by a hiring organisation is then re-engaged outside IR35 under the same contractual conditions and with the same working practices, HMRC may take the view that the hiring organisation and or the recruitment agency is knowingly participating in tax evasion.

Regardless of the fact that the contractor will keep the IR35 liability until 6th April 2021, the tax office could theoretically decide that any party in the supply chain who knows a contractor is working non-compliantly is breaking the law. 

Since 2017, it has been a criminal offence for businesses to fail to prevent the facilitation of tax evasion, with the use of off-payroll workers an area of focus for HMRC under the Corporate Criminal Offence (CCO) legislation. 

The risk of this happening is relatively low, given that the responsibility is that of the contractor, and HMRC don’t tend to prosecute for tax evasion when it comes to IR35 compliance. However, it is important that organisations are fully aware before making decisions and companies should document their position as part of their CCO risk assessment process.

What are the implications?

Prosecution and conviction could result in an unlimited financial penalty. Direct financial implications aside, businesses should also take into account the significant reputational damage that breaching the CCO legislation could inflict. 

What can businesses do?

In addition to outlining the importance to contractors that ‘reasonable care’ is taken when determining IR35 status for the next 12 months, businesses are advised to carry out a thorough CCO risk-assessment and put into action a documented policy. 

How can Qdos help?

Qdos has a wealth of experience in supporting and protecting contractors, recruitment agencies and hiring organisations with regards to IR35. Our IR35 specialists are uniquely placed to assist with a range of vital services that ensure compliance, minimise risk and offer peace of mind.

For more information on IR35 reform in the private sector, please contact the Qdos Commercial Services Team on 0116 478 3390.