IR35 reforms to get a gentle introduction
With IR35 Off Payroll Private Sector Reforms coming into effect on the 6th April 2021, HMRC has confirmed what it describes as a soft landing for affected parties for the first 12 months following implementation.
As businesses prepare with procedures and assessments in readiness for the reforms, they can take some solace from HMRC’s recent publication pledging its support for parties affected.
For the twelve months following implementation, HMRC has confirmed that it will take a “light-touch approach” to penalties. The publication goes on to state, “customers will not have to pay penalties for inaccuracies in the first 12 months relating to the off-payroll working rules, regardless of when the inaccuracies are identified, unless there’s evidence of deliberate non-compliance.
With effect from the 6th April 2021, the responsibility for IR35 determination will shift from the contractor to the engager. To help support this transition, HMRC established a specialist team and created an educational programme for all parties affected by the change.
The light-touch approach to penalties and commitment not to investigate returns for years before 2021/2022 has reassured parties that there will, at least, be a reasonable period for adaptation. See our recent blog, IR35 – Soft landings and support for a more detailed overview.
It’s reasonable to assume, therefore, that HMRC is expecting teething problems.
Concerning mistakes, HMRC states that “a mistake for the purposes of the off-payroll working rules may mean that you have not met some or all of your responsibilities, or have paid more or less tax and NICs than is due.”
“Mistakes can include payments being made to contractors without the correct deductions being made or making inaccurate employment status determinations.”
The focus here seems quite clear; make reasonable and accurate determinations and make the relevant and correct deductions appropriate to the determination.
HMRC has encouraged businesses to be vigilant and self-police their IR35 procedures, committing to supporting and assisting businesses who identify and admit mistakes once identified. In response, HMRC has said that they will work closely with engagers and agencies to understand and identify how the mistake has been made and support them to rectify any errors without imposing penalties.
While this approach may seem reasonable and supportive from HMRC, the added scrutiny and attention it may bring may not be quite as welcome.
Reasonable care and compliance
It is unclear as yet as to how HMRC will approach governance and compliance as a whole.
RTI requirements already provide them with much of the information required to understand where the larger contractor populations reside. It would seem likely that HMRC will look first to those areas where they believe there is a higher risk of non-compliance or avoidance.
We believe this will be the root of HMRC’s approach. Tax avoidance and deliberate non-compliance will most likely be the key issues that HMRC will want to expose and eradicate.
There may be some “heat” for organisations where mistakes occur but, for those businesses trying to do the right thing, a sensible and documented approach should be more than enough to satisfy HMRC’s requirements.
Where engagers take reasonable care in their determination process and where mistakes occur, take reasonable steps to avoid repeat or new errors, it’s reasonable to assume that HMRC will focus their efforts elsewhere.
Get it right first time
Whilst HMRC has committed to a soft touch introduction, the risk and liability for getting things wrong remain.
Organisations in the supply chain have already seen an increase in the administrative burden due to the changes. They are unlikely to welcome any additional scrutiny as a result of an HMRC investigation.
The easiest way to avoid this scenario is to get the process right first time!
It’s not too late, but with time quickly running out before the 6th April introduction, organisations need to act decisively to ensure that they have taken reasonable care in their approach to compliance. To avoid any risk of complicity in tax avoidance schemes, they must also have absolute confidence in their supply chain.
To help meet your reasonable care responsibilities concerning IR35 compliance and tax avoidance schemes, Workr Groups specialist team can provide impartial advice and support in preparation for the reforms.
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 email@example.com
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