Businesses should be prepared for the HMRC to change tactics on IR35 if current actions are anything to go by, according to Penny Simmons, a tax risk expert at Pinsent Masons, the law firm behind Out- Law News.
“Businesses should be wary about over-reliance on assurances from HMRC, particularly with regard to the likelihood or otherwise of penalties for non-compliance,” says Simmons. “As we have seen recently with HMRC’s surprise announcement overturning its previous guidance that UK VAT is not generally chargeable on early contract termination and cancellation fees, what HMRC says one day can change with no notice overnight.”
Simmons says, “Given the extent of government borrowing over the past six months to support the economy during the pandemic, the Treasury will be looking for every opportunity to raise funds, and non-compliance with IR35 could be one weapon in its arsenal.”
Final technical guidance on the changes to IR35 was published on 21 September. To help businesses prepare for off-payroll working rules, categorised as IR35, HMRC’s customer education and support programme is being relaunched as a series of webinars to start in October.
The guidance has been updated to reflect the final legislation included in the Finance Act 2020 and provide more examples and clearer explanations of how the rules should be applied, according to an Out-Law report.
“With more than six months until the new rules take effect, HMRC has given businesses extensive lead-in time to review the final guidance and ensure that they can introduce compliance process and procedures to deal with the new regime,” says Simmons.
“Notwithstanding the intense challenges that businesses are currently facing owing to the Covid-19 pandemic, they should not delay preparing for the rules or rely on previous comments from HMRC that it is committed to a light touch to non-compliance penalties in the first 12 months,” says the tax specialist.
The Out-Law report stated: “HMRC has reaffirmed its commitment to stand by a determination made under CEST where the information provided is accurate when the determination is made. However, HMRC has clarified once again that a CEST determination will not be valid if circumstances involving the engagement of the PSC subsequently change. Businesses are being encouraged to use the tool now ahead of April to aid their preparations.”
What’s your status?
From 6 April 2021, “engaging businesses” will be made liable for determining whether the IR35 rules apply. They will also be required to operate PAYE and pay employers’ National Insurance Contributions. The changes will not apply to small businesses which engage contractors through PSCs.
Under the new rules, businesses will be required to provide a statement determining the employment tax status of contractors working through PSCs directly to the contractor, including reasons for the determination.
Businesses may use HMRC’s ‘Check Employment Status for Tax’ (CEST) tool to establish whether a contractor would be considered to be an employee for tax purposes. Contractors will have the right to disagree with the determination through a new business-led status disagreement process.
“When making their status determinations, whatever tools businesses choose to use, the key will be to ensure that they collate information about their entire PSC population – including those engaged indirectly – and make determinations prior to April, whilst always considering the reality of the PSC contractor’s engagement with the business and not just how the engagement is recorded on paper,” says Simmons.
To share your situation or concerns over IR35, get in touch at email@example.com