It’s fair to say that the lead-up to introducing the Off-payroll reforms to the private sector was anything but smooth.

When the Off-payroll reforms were introduced into the private sector in April 2021, two full years had passed since the government confirmed its intentions to introduce the reforms. The private sector had also benefited from witnessing the introduction of the reforms into the public sector back in 2017.

The pandemic forced many businesses into emergency or survival mode. Even though the government deferred the introduction of the reforms for twelve months, engagers could be forgiven for not being entirely focused on IR35.

Under normal circumstances, most people would argue that four years (2017 – 2021) is ample time to prepare for any form of change.

However, these were not normal circumstances, and IR35 has wallowed in ambiguity and controversy since its original introduction many years ago. Preparation, therefore, was unlikely to be straightforward.

Public sector investigations set the tone

In our previous article – 2021, A year of reform, we reviewed our experiences and findings following the introduction of the reforms to the private sector.

The findings were mixed, with some engagers exceptionally well prepared and others completely oblivious.

Irrespective of our findings, the one thing that has become clear since the introduction is HMRC’s commitment to the off-payroll reforms.

Even though the reforms were introduced to the public sector back in 2017, there were very few cases to base judgment or opinion on what HMRC would classify as good, bad, right or wrong.

Again, another reason for engagers to be confused or cautious about what actions to take. 

However, following the introduction of the reforms to the private sector, whether by strategy or coincidence, HMRC began to publish the results of investigations into some high profile public sector bodies.

The results were difficult to ignore.

The DWP, Home Office and the Ministry of Justice were all found wanting following IR35 investigations with eye-watering tax bills of £87.9M, £33.5M and £72M, respectively.

HMRC have subsequently followed that up with the results of an investigation into Defra, the government department responsible for environmental protection, food production and standards, agriculture, fisheries and rural communities. 

The result of Defra incorrectly determining contractors as outside IR35 in the eyes of HMRC was another hefty tax bill. This time a whopping £48M.

What does 2022 hold for IR35 in the private sector?

If these public sector examples are anything to go by, private sector businesses need to heed these ominous warnings.

Even though the government confirmed a soft introduction, promising no fines or penalties on genuine errors for the first twelve months of the legislation, this period is now almost over.

Having already gone through the IR35 investigation process with public sector organisations, HMRC is guaranteed to use the lessons learned when turning its attention to the private sector.

Initial requests for information and interviews with private sector businesses have demonstrated HMRC’s keen interest in the systems used to make status determinations, including the weighting of questions used to achieve a result. This is particularly interesting considering that the public sector organisations punished for making incorrect determinations all used the government’s own CEST status determination tool.

Additionally, HMRC questions have intimated that the scope of investigations may expand into the broader supply chain rather than focusing solely on status determinations.

Therefore, care and compliance must prevail in 2022 for private sector businesses to meet the demands of the off-payroll reforms.

If you have concerns about meeting the requirements of the off-payroll legislation or supply chain compliance, then Workr Compliance can help.

For a free, no-obligation audit and assessment of your IR35 compliance process, you can speak directly with Andy Webster, Founder and Director, Workr Compliance, on 07827 810851 or at aw@workrgroup.com.