IR35 contractor compliance
  • Publish Date: Posted 12 months ago
  • Author:by Katie Ball

Is your Business protected? How to Ensure Compliance in the Supply Chain amidst HMRC's £161 Million Investment

The HMRC are looking to invest £161 million into the private sector to investigate claims, which will ,in part, focus on compliance within the supply chain. With this in mind, ensuring your compliance procedures are robust and can stand up to scrutiny is essential.Recently, we had the opportunity to attend a webinar run by Brookson One’s legal team on the topic of HMRC Letters and Investigations. Brookson One are an FCSA accredited umbrella company who provide financial support to contractors without the stress of running a limited company, amongst other services such limited company accountancy services. The webinar focused on providing an understanding on how to prepare for a potential investigation by the HMRC. In this webinar, Brookson conducted a survey, of which 10% of those asked said they, or their end clients had received a letter from the HMRC, which indicates that the HMRC are starting to seriously conduct their compliance checks with end clients. With the new rules coming into effect 2 years ago now, it was always likely that the HMRC would start conducting, and investing in, compliance activity. This has come in the form of letters sent to the end clients to ensure they are complying with the new rules. This letter is 18 pages long and requests relatively quick response times. The end client has 7 days to acknowledge receipt of the letter, and 28 days to complete the information required and to schedule a meeting with the HRMC. Examples of information the HMRC may request are –The Hiring Process for engaging contractorsYour end client’s end-to-end process of performing employment status checks of such contracts and the process and timeframe for performing reassessmentsHow many contractors your end client’s are engaging withPercentage split between Inside IR35 contractors and Outside IR35 contractors Process for deciding if any outsourced services are fully contracted outThe HMRC will then review the information provided and provide their outcome within 2 weeks. If the HMRC are satisfied with the responses, the compliance check will be closed down. If the HMRC have determined non-compliance, an investigation will be opened, and the fee payer could end up owing the HRMC unpaid taxes, NI and Apprenticeship Levy. The amount payable would be determined through their investigation. If the end client has not taken reasonable care when issuing the Status Determination Statement, then the liability for any fees and penalties would revert to the client rather than the employment agency fee payer. Where the HMRC does apply penalties, the penalties will be based on a percentage of the tax owed and levied against behaviour, from ‘carless’ to ‘deliberate non-conformance.’ If you are deemed to have been careless and it’s your first offence, you can apply to have your penalty waived.54% of those in the Brookson webinar said they were worried about IR35 liabilities, which isn’t surprising as this is unchartered waters for companies. Therefore, how your organisation conducts their IR35 compliance is imperative. There are various tools on the market, with 32% saying they rely on the HMRC Check Employment Status for Tax tool, 25% said they rely on external legal expertise, and 40% said they utilise a third party tool to help assist determining status. Whilst utilising the HMRC Check Employment Status for Tax tool can be useful, it would definitely be worth utilising another third party tool to help determine status, because as we know.Not only is IR35 Compliance a consideration, the HMRC will also be conducting investigations into tax avoidance schemes. This is particularly prevalent when a contractor has been caught inside IR35 and has chosen to utilise an umbrella company. Not all umbrella companies have been set up legitimately and their purpose is to ensure the most amount of tax relief is applied as possible, which can include tax relief on expenses for example. All companies are required to abide by the Criminal Finances Act, and paying a company listed on the named tax avoidance schemes, promoters, enablers and suppliers list could lead to not only reputational damage, but fines and penalties for the fee-payer in the chain. The worker may also be worse off because of non-compliant practises and the end client could end up footing the bill if you are unable to pay the fines. It is worth noting that as part of the Finance Bill, names can only be kept on the named tax avoidance schemes, promoters, enablers and suppliers list for 12 months, so the first names have now been removed. Adding a check of this list into your Compliance process before making monthly payments would be useful to help reduce the risk of making payments to any companies on this list. Businesses are at risk of criminal convictions if supply chain compliance is not met. If compliance is not met, businesses become liable under the Criminal Finances Act.Gerrard White has a dedicated compliance team which manages all compliance requirements. If you would like to find out more, please get in touch and we will be happy to discuss your needs.01892 553355 | info@gerrardwhite.com

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The HMRC are looking to invest £161 million into the private sector to investigate claims, which will ,in part, focus on compliance within the supply chain. With this in mind, ensuring your compliance procedures are robust and can stand up to scrutiny is essential.

Recently, we had the opportunity to attend a webinar run by Brookson One’s legal team on the topic of HMRC Letters and Investigations. Brookson One are an FCSA accredited umbrella company who provide financial support to contractors without the stress of running a limited company, amongst other services such limited company accountancy services. The webinar focused on providing an understanding on how to prepare for a potential investigation by the HMRC.

In this webinar, Brookson conducted a survey, of which 10% of those asked said they, or their end clients had received a letter from the HMRC, which indicates that the HMRC are starting to seriously conduct their compliance checks with end clients. With the new rules coming into effect 2 years ago now, it was always likely that the HMRC would start conducting, and investing in, compliance activity. This has come in the form of letters sent to the end clients to ensure they are complying with the new rules.

This letter is 18 pages long and requests relatively quick response times. The end client has 7 days to acknowledge receipt of the letter, and 28 days to complete the information required and to schedule a meeting with the HRMC. Examples of information the HMRC may request are –

  • The Hiring Process for engaging contractors

  • Your end client’s end-to-end process of performing employment status checks of such contracts and the process and timeframe for performing reassessments

  • How many contractors your end client’s are engaging with

  • Percentage split between Inside IR35 contractors and Outside IR35 contractors

  • Process for deciding if any outsourced services are fully contracted out

The HMRC will then review the information provided and provide their outcome within 2 weeks. If the HMRC are satisfied with the responses, the compliance check will be closed down.

If the HMRC have determined non-compliance, an investigation will be opened, and the fee payer could end up owing the HRMC unpaid taxes, NI and Apprenticeship Levy. The amount payable would be determined through their investigation. If the end client has not taken reasonable care when issuing the Status Determination Statement, then the liability for any fees and penalties would revert to the client rather than the employment agency fee payer.

Where the HMRC does apply penalties, the penalties will be based on a percentage of the tax owed and levied against behaviour, from ‘carless’ to ‘deliberate non-conformance.’ If you are deemed to have been careless and it’s your first offence, you can apply to have your penalty waived.

54% of those in the Brookson webinar said they were worried about IR35 liabilities, which isn’t surprising as this is unchartered waters for companies. Therefore, how your organisation conducts their IR35 compliance is imperative. There are various tools on the market, with 32% saying they rely on the HMRC Check Employment Status for Tax tool, 25% said they rely on external legal expertise, and 40% said they utilise a third party tool to help assist determining status. Whilst utilising the HMRC Check Employment Status for Tax tool can be useful, it would definitely be worth utilising another third party tool to help determine status, because as we know.

Not only is IR35 Compliance a consideration, the HMRC will also be conducting investigations into tax avoidance schemes. This is particularly prevalent when a contractor has been caught inside IR35 and has chosen to utilise an umbrella company.

Not all umbrella companies have been set up legitimately and their purpose is to ensure the most amount of tax relief is applied as possible, which can include tax relief on expenses for example.

All companies are required to abide by the Criminal Finances Act, and paying a company listed on the named tax avoidance schemes, promoters, enablers and suppliers list could lead to not only reputational damage, but fines and penalties for the fee-payer in the chain. The worker may also be worse off because of non-compliant practises and the end client could end up footing the bill if you are unable to pay the fines.

It is worth noting that as part of the Finance Bill, names can only be kept on the named tax avoidance schemes, promoters, enablers and suppliers list for 12 months, so the first names have now been removed. Adding a check of this list into your Compliance process before making monthly payments would be useful to help reduce the risk of making payments to any companies on this list. Businesses are at risk of criminal convictions if supply chain compliance is not met. If compliance is not met, businesses become liable under the Criminal Finances Act.

Gerrard White has a dedicated compliance team which manages all compliance requirements. If you would like to find out more, please get in touch and we will be happy to discuss your needs.

01892 553355 | info@gerrardwhite.com

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