Inside IR35, unlawful deductions from pay - Deemed employers (agencies!) beware!!!

Inside IR35, unlawful deductions from pay - Deemed employers (agencies!) beware!!!

Inspired Employer Solutions Ltd (IESL) and IR35App has become aware of an Employment Tribunal case (No:2302929/2023) in respect of work deemed to fall inside IR35 and the Off Payroll Working rules. The relevant parties in this matter did not dispute the “inside IR35” decision of the end client; the Home Office.

So what was in dispute?

The worker in this case, Michelle Appiah asked the Employment Tribunal (ET) to rule on the question of deductions of employer national insurance contributions (NIC’s) and apprenticeship levy taken from her pay by Tripod Partners Ltd, a health and social care recruitment agency, (the deemed employer) and remitted to HMRC each month.

What was the outcome?

In short, the judgement given by the ET ruled deductions of employer NIC’s and apprenticeship levy by Tripod Partners Ltd were unlawful and they were ordered to pay Michelle Appiah the sum of £36,826.65.

Within the contractual literature, whilst there was reference to deductions of PAYE and national insurance contributions (NIC’s), however this did not specifically contain Appiah’s written consent / agreement that deductions of employers NIC and apprenticeship levy could be taken from her pay by Tripod Partners Ltd, hence the reason why the case was taken to the ET.

In essence the ET ruled these deductions were unlawful as without Appiah’s written consent / agreement, under HMRC legislation these were the legal responsibility of the employer, in this case, the deemed employer Tripod Partners Ltd.

Will the case be appealed?

At this stage, the answer to this question is unclear as the decision of appeal rests with Tripod Partners Ltd.

However, the ET did comment it was a company-wide practice for deductions of employers NIC and if appropriate apprenticeship levy to taken from the payment to workers deemed inside IR35. As such, the ET said the judgement had wider judicial implications for Tripod Partners Ltd to consider. Any such other cases were not however part of the current claim before the ET - so watch this space.

What should agencies do next?

As a bare minimum, agencies need to consider;

• What deductions they currently effect from a worker’s payments in cases falling within IR35 & Off Payroll Working?
• Review existing contracts and seek appropriate legal advice to ensure the legitimacy of such deductions.
• Take appropriate remedial corrective action where required.

What should End Clients do?

There is plenty for “End Clients” to think about and as such we would recommend they;

• Review what the agencies they presently use, have done in the past in respect of payments for workers caught within IR35 and Off Payroll working.
• Based on the previous answer, be prepared to sign an updated contract with the Agency.
• Expect agency fees to rise as these costs will no doubt be passed on to you the end client.

Final thoughts

Being involved in a HMRC dispute or Employment Tribunal (as in this case) on whether a worker’s engagement is inside or outside IR35 or legitimacy of any deductions (not perceived as statutory) is likely to be both time consuming and financially costly.

We at IESL / IR35App are here to help, just drop us a line. As ex HMRC and Big 4 tax specialists, Geoff & Adrian bring a practical and hands on approach to this complex subject matter. Being aware of how things work on the other side of the fence, we bring a different perspective and outlook to the table.  

Both talking to and meeting you, we can help identify any weaknesses or areas of concern in your current systems/procedures so these are improved and are sufficiently robust to satisfy HMRC when they come calling.

www.inspiredemployer.co.uk