Empowering the Freelance Economy

HR mistakes to blame for IR35 investigations

Matt Fryer, managing director at Brookson Group believes many IR35 investigations gone bad could be avoided.
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HMRC is actively investigating IR35 compliance across many sectors, but the oil and gas sector is particularly under the scope. A report reveals that many investigations gone wrong might be avoided if in-house HR training and processes were handled differently.

Energy businesses, namely in oil and gas, and their specialist contractor workforce are eagerly awaiting the conclusions of HMRC IR35 investigations over IR35 status. This added stress is at a time when tensions are high due to political policy uncertainty and the cost-of-living crisis.

According to Matt Fryer, managing director at Brookson Group, many hiring companies are not meeting the threshold for ‘reasonable care’ when it comes to determining a contractor’s tax/worker status. As many Freelance Informer readers will be aware, this apathy is equally causing unnecessary grief and costs to businesses and contractors.

Fryer revealed in the report that there were five common mistakes made by central HR employees, most of which came down to blanket ban approaches to hiring and lack of training.

The IR35 tax compliance expert explained in an Energy Voice report that if more in-house HR teams underwent mock investigation training many hiring companies would be in a better position to hire the best talent, especially those that wish to remain outside IR35.

Training could also ensure that if the business does go under investigation, purely because they are in a target IR35 sector, they would be in a stronger position to prove to be worker status compliant.

Throughout Brookson’s mock audit investigations, the firm found a number of “common challenges and mistakes”. Here are the five most common:

  • Naming the wrong person as the lead audit contact
  • Misunderstanding HMRC’s IR35 questions
  • Missing IR35 policies and hiring procedures
  • Making blanket decisions and role-based assessments
  • Lacking evidence

“Many organisations are using central HR employees to complete IR35 status determinations, who may never have met the person they are assessing and often do not have an accurate picture of their working practices,” said Fryer in the report.

“Not only can this result in incorrect assessments, but also contradictions further down the line,” he said.

Fryer suggested that the person providing the evidence to inform the tax status determination should be someone who works closely with the contractor and has insight into their contractual requirements.

“This helps ensure all information is accurate and in turn, a reliable IR35 assessment will be generated,” he said.

He continued: “It’s this person who should be involved in any audits relating to the contract, as they have the insight and knowledge needed to respond to any questions or queries from HMRC.”

To read in more detail how each mistake can be rectified, read Fryer’s account in the Energy Voice report here.

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