Clock railway stairs

Has COVID infected IR35 determinations?

Nick Irvin, Manager, Employment Tax
15/12/2020
Clock railway stairs

Following the launch of our IR35 Hub, we have had many questions from organisations as to whether the current pandemic and the changes to working practices have had any impact on the IR35 and employment status rules.

As organisations prepare for the upcoming changes to the off-payroll working rules (often referred to as IR35) from April 2021, it is important to be as informed and as certain as possible when making IR35 determinations. Therefore, it is also important to consider whether any changes to underlying terms and conditions and working practices occur due to the pandemic.

IR35 determinations largely revolve around assessing whether the worker would be an employee of the end client if there was a contract directly between the end client and the worker (rather than with an intermediary in between). This consideration is based on typical employment status principles, which means that any changes to working practices due to COVID-19 could have an impact on both IR35 determinations and typical employment status assessments of individuals working for clients.

Working from home impact

The most obvious impact that COVID will have had on the UK’s workforce is that many individuals will now be working from home, rather than working in an office. A key facet of employment status is control over the work that they undertake, which includes a consideration of whether the client can control where the worker carries out the work. However, the impact of working from home due to COVID is likely to be less dramatic and crucial as some may think.

Where workers now work from home, rather than use the offices of the client, it is the underlying right to control where the work is carried out that needs to be looked at. If the terms and conditions of the contract are amended, such that the worker can undertake the work wherever they want, then this could push the engagement further away from an employment relationship.

However, if the individual is simply undertaking the work from home due to the pandemic, and the client can still control where the work is carried out (aside from government lockdown restrictions), then it is unlikely to have any impact on the employment status determination.

The reason for this is because employment status is determined by more than just one factor. Control over where the work is carried out needs to be considered, but it is only a small piece of the employment status puzzle and is unlikely to sway a determination on its own.

Less supervision or control

Some will argue that while working from home they are subject to less control, or at least less supervision, than when working in the office. This is likely to be true, as managers cannot oversee the work of all staff if they are all in different locations (although modern technology is likely to help with this).

Again, the key point to consider here is the underlying right to control the work. For many, while the day-to-day control might decrease when working from home, there are unlikely to be any changes to the underlying right for the client to step in and control how the worker does their work. It is this underlying right that is crucial, rather than whether the client does actually exercise that right on a day-to-day basis.

A comparison to make with regards to working from home and also the less direct supervision that comes with it, is that many employees have been able to work from home during the pandemic, as organisations adapt how their staff work, but this has not changed the overall employment status position of these individuals.

Supplying own equipment

Another consequence of the pandemic, largely leading on from working from home, is that many workers are now being required to use their own equipment to carry out the work. Whether the worker or the client provides necessary equipment can be a key factor when determining employment status and IR35. However, again, this is likely to be more nuanced in most cases.

For workers who are able or required to work from home due to COVID, a large proportion will be desk-based workers whose equipment necessary to perform the work is limited to computer and office equipment. HMRC’s view, supported by case law, is that the provision of equipment is only material if it constitutes a significant investment.

Therefore, laptops, additional screens and office equipment will not be enough to have any substantial impact on the employment status or IR35 determination.

No invite to the office festive party

This third point might sound trivial, but it is surprising how much people will focus on attendance (or lack of) at an office festive party to make an argument about employment status. This probably stems from HMRC’s historic link between a worker attending the office party and the worker being ‘part and parcel’ of the client’s organisations, akin to employees.

However, the importance is far deeper than an invite or attendance to any party, it is all to do with whether the worker is integrated into the client’s organisation. An individual can be fully integrated into a client’s organisation, but not invited to the office festive party. Similarly, an individual can be invited and attend a client’s festive party and not be integrated into the client’s organisation.

Far more important than any office party attendance will be the wider integration consideration, including (but not limited to):

  • is the worker part of a team within the client’s organisation?
  • does the worker report to a manager or line manage other individuals in the client’s organisation?
  • is the worker in receipt of the same office ‘perks’ as other employees?
  • is the worker subject to the same performance assessments as other employees?
  • how would the worker introduce themselves to the customers and/or suppliers of the client?

Therefore, the absence of a festive office party in 2020 is unlikely to have any impact whatsoever on whether someone is subject to the IR35 rules.

So, do organisations need to revisit previous IR35 determinations?

Many organisations will have carried out detailed IR35 and employment status determinations ahead of the proposed changes to the IR35 rules in April 2020. They may also be wondering whether they need to redo these determinations as a result of the above changes to working practices.

It is important to note that the fundamental employment status rules have not changed since April 2020. Therefore, determinations made previously will probably still be correct today. However, that does not mean that determinations should not be revisited.

As we know, employment status and IR35 determinations are made on a case-by-case basis. They should also be revisited if there are any underlying changes to the terms and conditions under which the work is carried out.

Therefore, if the underlying terms and conditions have not changed, and the worker is still working in the same way as they were previously, prior determinations are extremely likely to still apply. However, if the working practices or contract have changed, the determination should be revisited to ensure it is still correct.

For any organisations that have yet to start thinking about the upcoming changes to the IR35 rules, you should start doing this right away. From our experience last year, it can take several months for organisations to ready themselves for the changes, so it is important that preparation is not left to the last minute and rushed.

Our new IR35 Hub sets out steps that organisations should take to help prepare for the April 2021 changes.

If you require any assistance with employment status or IR35, please get in touch with your usual Crowe contact.

The steps to take to prepare for April 2021

What you need to undertake now to ensure that you are prepared for the reforms when they come in.

Contact us

Caroline Harwood
Caroline Harwood
Partner, Head of Share Plans and Employment Tax
London