What’s that coming over the hill…?

Unless you’ve been travelling to Mars for the last 8 months, you will know the new rules around IR35 are almost upon us.  The off-payroll working rules apply to those who are deemed an employee, and not truly self-employed.

Currently, for private sector companies, the contractor themselves is responsible for determining their status, as well as the risk of non-compliance.   The new rules essentially move the obligation from the contractor to the end user of the services (ie the end client) (although please note small businesses are exempt from this change and the contractor will keep the responsibility).

HMRC delayed the introduction of these changes last year (officially due to COIVD) and have continually said there will be no further delays beyond 6 April 2021 as they bring them in line with the public sector rules.

Very recently they have confirmed they will provide a more supportive compliance approach to these changes as they come in. In particular, the client ‘will not have to pay penalties for inaccuracies relating to the off-payroll working rules in the first 12 months of the operation of the new rules, unless there’s evidence of deliberate non-compliance’.  This is very welcome as it gives companies, already struggling under COVID related workloads/ furlough staff/ reporting obligations etc, some leeway should any mistakes be made.

HMRC have clarified that the delayed introduction of penalties will include where payments are made to contractors without the correct deductions or where inaccurate employment status determinations have been made.  This latter point is especially key, because the CEST tool, whilst improved substantially from 12 – 18 months ago, still remains limited, relies on the understanding of the person entering the data and does not provide an answer in all cases.

Also, providing a degree of comfort to contractors themselves, HMRC have committed that they won’t use information acquired as a result of the new rules to open compliance enquiries before the 2021/22 tax year, unless fraud or criminal behaviour is found.  So just because an end client decides to treat a previously self-employed contractor as an employee should not mean that HMRC will  automatically audit the contractor.

HMRC have advised that where mistakes are made they will explain to the client how the rules should be correctly applied, so that the client can self-correct the errors before HMRC would consider intervening. Companies do still need to make sure their compliance aspects are in order and those Status Determination Statements are produced, accurate and handed to the contractor (or contracting entity).

David Chandler, Tax Consultant