IR35 reforms in the private sector – who is liable?

The new rules come with significant compliance and tax risks for both agencies and end hirers. The agency is the first port of call for HMRC should a successful challenge be made to an ‘outside’ IR35 status assessment.

Each partner in the supply chain could protect itself, but there is no way to remove liability altogether.

• End hirer – if an ‘inside’ IR35 determination is given, the end hirer passes on the liability if it does the assessment using reasonable care and passes that on correctly. In the case of an ‘outside’ determination, the risk remains with the fee payer (the agency) and the end hirer.
• Agency – in the case of an ‘inside’ IR35 determination, the agency passes on liability if there is another link in the supply chain, and it can be shown that the decision was correctly passed onto the next party.
• Separate fee payer – if there is a separate fee payer and tax was not paid when HMRC thinks it should have been, then the fee payer is the first port of call. However, if HMRC can’t collect from the fee payer, then they go to the agency. If they can’t collect from the agency, they go to the end hirer.

If an accurate, professional assessment is done, there should be no challenge from HMRC, which means that a high-quality assessment is critical. Risk is further mitigated if the outcome of the SDS is insured.

The following diagram illustrates responsibility for liability: