How Scroll keeps you safe if you work ‘outside IR35’
Image by Jon Tyson at Unsplash
Those IR35 tax rules might be pesky, but the penalties for getting it wrong can be severe. Here’s how Scroll looks after you if you work outside IR35.
By Lou Prior
Lou is part of Scroll’s central team. She takes care of invoices, and knows more than she’d like about the ‘Check employment status for tax (CEST)’ service from HMRC.
Why the IR35 tax rules are important
Much has been written about IR35, the pros and cons of working inside or outside of it and the impact IR35 has on contracting in general. There are also many helpful IR35 calculator tools that allow you to crunch numbers and decide if you want to be ‘in’ or ‘out’.
Because there’s so much information already available, this blog is not going to examine IR35 in much detail - though it’s useful to remember what it all means.
The GOV.UK guidance on IR35 says: “The off-payroll working rules make sure that a worker (sometimes known as a contractor) pays broadly the same Income Tax and National Insurance as an employee would. The rules apply if the worker who provides services to a client through their own intermediary would have been an employee if they were providing their services directly to that client. The rules are sometimes known as ‘IR35’.”
So, if you think you’re outside IR35 and HMRC disagrees, you could have to repay the tax you owe and any interest on the amount.
A side note for content designers…
You might also be interested to know what IR35 stands for (because obviously we do not believe in using acronyms with no explanation). Basically: nothing. IR35 was the reference given to the budget press release on 9th March 1999 which first announced the legislation. It literally stands for ‘Inland Revenue’ (now HMRC) ‘35’ (the press release number). How infuriating is that!
What Scroll does if you work outside IR35
Whilst it’s true that Scroll has been seeing an increase in projects that stipulate working within IR35, there are still many projects that are ‘outside’ IR35. However, because of the interest that HMRC takes in the matter - IR35 is their baby after all - Scroll takes certain steps to protect everyone in our chain: our contractors, our end clients and Scroll.
If you contract for Scroll through your limited company, it’s highly likely that you’ll receive an annoyingly chirpy email informing you of ‘Scroll’s CEST result as the hirer for your position at XYZ’ saying the assessment ‘states the role is outside IR35’.
Well, jolly good you might think, roll back the carpet, do a David Bowie and let’s dance. But wait, there’s more! The rest of the email goes on to ask that you complete your own assessment, from the position ‘of the contractor’ and then send us a copy for our records. Why do we do this?
It isn’t spite, malice or boredom, I swearsies. It’s to protect you.
All about HMRC and CEST (‘Check employment status for tax’)
To help determine if you’re inside or outside IR35, HMRC supplies a free online tool known as CEST (‘Check employment status for tax’). By getting you to answer a series of questions, the assessment ends with a declaration saying if ‘Off-payroll working rules (IR35)’ do or do not apply. If they do not apply then you’ve been deemed outside IR35.
At Scroll, we complete a CEST for each and every new contract, as part of our due diligence.
But we don’t just take HMRC’s word for it.
Why Scroll does not only use CEST
Unfortunately there have been a number of cases where, even with completed CESTs, HMRC have not, unlike Tammy Wynnette, stood by them. You can read about some of these cases in Contractor UK.
Because HMRC has not always stood by CEST results, Scroll, for certain types of contracts, also uses the services of an independent IR35 specialist. And yes, you probably guessed it. This means as a contractor, you’ll get a different email from Scroll, inviting you to set up an account on a portal and answer questions.
Sadly these questions aren’t to find out your preferred donut filling or dragon colour. What they are designed to do is ask more detailed and in-depth questions than the CEST assessment covers. This allows the contractor to show they’re self-employed, they’re operating a genuine business and therefore, crucially for tax purposes, they’re not ‘employed’.
In contrast to the algorithm of the CEST tool, this assessment is checked by real people, all of whom are experts in IR35. What’s more, they will stand by the results of the assessment. And yes, there is a fee. As the contractor, you will need to pay a small fee to complete the assessment. However, Scroll feels this assessment is so important that we will reimburse you for the cost.
So why do we not just drop CEST?
Why, if HMRC do not always stand by their own assessment tool, do Scroll continue to use the tool and request contractors to use it as well? Good question. For many smaller projects, a CEST assessment is actually sufficient. For the contracts where we use both the HMRC CEST and the independent assessment, we take the belt and braces approach to demonstrate to HMRC, should the need ever arise, that we are doing our due diligence.
We really think you’re worth it!
Not to get all L’Oreal (okay, maybe a little bit), but we at Scroll believe all this extra work is worth it. CESTs and independent assessments do generate admin, not just for Scroll but for our contractors. We acknowledge this.
However, just as Scroll is committed to paying promptly and fairly, we are also committed to supporting and protecting our contractors as far as we’re able. We see these assessments as an important part of looking after our contractors through the whole lifecycle of their projects.
You can read more about how Scroll likes to work.
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