As we approach two years of working with the Off-Payroll Rules, it’s time for businesses to prepare for the HMRC’s investigations into IR35 compliance. The ‘soft-landing’ period is over, with the Chancellor committing £79 million to help with tax enquiries and compliance performance. Over time, it is predicted that this investment will bring in £725 million of revenue over the next 5 years.
The introduction of IR35 was primarily to bring in more revenue, but also to address the inability to police the IR35 system in its old form. Now, with many contractors being in one place, it is much easier for the HMRC to manage and tackle any non-compliance.
The HMRC’s compliance checks will be risk-assessed, considering the size of the business and how many contractors are currently operating at that business. It is likely the HMRC are using Intermediaries Reports, RTI reports and their own software to determine the clients they would like to investigate.
Fines for deliberate non-compliance will be imposed from April 2022, however this won’t apply to the current tax year and moving forwards.
Compliance letters will be sent directly to the end client as they are responsible for determining IR35 Status and ensuring that ‘reasonable care’ has been taken when determining the status. These letters will still be sent to the end-client even when recruitment agencies are involved as ultimately the end-client still has the responsibility of determining and signing off the IR35 Status.
If you receive a letter, it’s essential to:
Share information with all interested parties including all parties in the contractual chain and your tax advisors.
Talk with your tax advisors about how to respond to the information request.
Gather all information requested and review this with your tax advisor before sending this to the HMRC.
Agree on the wording of your response. You can submit any additional context needed to help explain reasons for any unusual wording for example.
* You can have an informal chat with the HMRC, but you are under no obligation to answer any questions and you can ask for everything to be kept in writing
Enquiries can become very detailed, and can take months, in some cases taking years to resolve, which can become very costly paying for advisors to front the enquiry. Having adequate insurances in place can help to protect the whole supply chain.
Clients working with recruitment agencies, are still responsible for IR35 status and should collaborate to ensure all paperwork and information requested is provided.
In the unfortunate event that you do receive a penalty, this will be based on the 2022 tax year (and subsequent tax years moving forwards) and will be based on a percentage of lost revenue and will be levied based on behaviour. The most likely category for a penalty is carelessness, which essentially is a failure to take reasonable care when determining status. In some cases, you will be able to apply for a suspension of the penalty and the HMRC can set conditions, which if met and the HMRC are happy, any penalty could be waived.
In order to avoid receiving a penalty, it is important to ensure there are robust processes and procedures in place to satisfy any HMRC investigation.
Gerrard White has a dedicated compliance team in place, we would be happy to help end clients ensure robust IR35 compliance procedures are in place. For more information, please contact us directly on email@example.com | 01892 553355.