IR35 investigations – HMRC setting the wheels in motion

Six months after introducing the Off-payroll working rules into the private sector, it appears that the HMRC is progressing to the next stage of its IR35 policing plan.

As we have pointed out many times before, IR35 is not something you can just avoid or ignore.

Why do we say this?

Well, over the last couple of weeks, we have seen and heard confirmation that HMRC has sent Requests For Information (RFI) letters to a large number of companies. In particular, businesses in the Oil and Gas, Energy and Renewables, Aerospace, Rail, IT, Infrastructure and Construction industries.

The main focus of the request is for documented evidence of records, processes and systems used for the off-payroll legislation, with compliance the apparent target. 

We do have a word of warning, however. The RFI also requires details of those contractors transitioned to PAYE models (either agency payroll or Umbrella) upon the introduction of the reforms. It also asks for records of contractors that transitioned to permanent employees.

Both requests would infer that HMRC is keen to understand whether businesses have made blanket statement decisions following the introduction of the reforms. This would likely be considered a lack of reasonable care by HMRC if found to be the case.

What will a Request For Information include?

It’s important to note that an RFI does not mean that there will definitely be an investigation. As we understand it, it is just a starting point from which the HMRC will assess the information received and then determine whether they feel an investigation is necessary.

HMRC will likely look for trends, whether positive or negative and then proceed from there.

As we have already pointed out, the first section of the RFI refers to guides, processes and systems. A robust system with clear and documented processes should give engagers a solid foundation to argue a reasonable care case, even where errors occur. The RFI also requests evidence of how the process is applied consistently throughout the organisation. In an investigation, HMRC will look beyond any documentation and processes to assess the working practices in a “substance over form “approach.

 In other words, does what happens on the shopfloor reflect what is documented or included in contracts. If not, there could be consequences.

Interestingly, the RFI also asks about the test systems used to make status determinations. Specifically, the RFI asks whether the engager has used the government’s own CEST (Check Employment Status for Tax) test or any other test, with details of such required.

The remaining details required centre around the number of contractors and the methods through which they are engaged.  

What comes next?

As we’ve previously stated, receiving an RFI is not a definite indication HMRC wants to investigate. However, it’s an excellent indicator of what they might look for if they decide to.

Based on the RFIs sent out, we are confident that those organisations with a robust process for making status determinations will fare well under scrutiny. Following the guidelines for reasonable care and applying consistency and common sense to the determination process should go a long way towards satisfying HMRC’s initial enquiries.

If you and your business need to utilise or continue using contractors but have concerns about meeting the requirements of the off-payroll legislation, then Workr Compliance can help.

Workr Compliance can provide you with impartial advice on engaging high-calibre specialist contractors whilst effectively managing your supply chain in an efficient and compliant manner.

We can help you remain competitive in the demand for specialist skills and talent whilst meeting the requirements of the off-payroll legislation and minimising the risk of an HMRC investigation or incorrect assessment.

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.

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