IR35 – Soft landings and support
With no mention in the budget, and following its latest update on the IR35 Off Payroll Private Sector Reforms, HMRC has all but confirmed that the reforms would come into effect on the 6th April 2021.
Confirming what it describes as a soft landing for affected parties for the first 12 months following implementation, HMRC emphasised compliance and support in its update.
In essence, this means that HMRC will take a lenient approach with parties where they believe genuine mistakes are made during the process. For the twelve months to the 5th April 2022, HMRC states that it will not issue penalties where it deems the error genuine. It will, however, still pursue any perceived outstanding tax liabilities.
Soft landings and support
IR35, also known as the Intermediaries Legislation, is tax legislation aimed at tackling tax avoidance.
The earnings of workers providing their services and expertise to a client via an intermediary, such as a limited company or personal service company, are subject to income tax and National Insurance Contributions (NIC’s) if caught by IR35.
With the responsibility for IR35 determination shifting from the contractor to the engager once the reforms take effect, HMRC has established a specialist team and created an educational programme in preparation for the changes.
Emphasising its desire to ensure that people pay the correct taxes through education and support, HMRC has confirmed that it will take a “light touch” approach to penalties in the first twelve months following the implementation of the IR35 changes.
In its policy paper, issued on the 15th February 2021, HMRC stated: “You will not have to pay penalties for inaccuracies relating to the off-payroll working rules in the first 12 months of the operation of the new rules unless there’s evidence of deliberate non-compliance.”
HMRC also went on to confirm that “We have also committed that we will not use information acquired as a result of the changes to the off-payroll working rules to open a new compliance enquiry into returns for tax years before 2021 to 2022, unless there is reason to suspect fraud or criminal behaviour.”
Compliance and anti-avoidance
Whilst these commitments will re-assure those parties concerned with prior years investigations and ambiguity around determination processes, we still urge parties to proceed with caution.
Implementing a specialist team is a clear indicator of HMRC’s determination to tackle tax avoidance and compliance.
In publishing its compliance principles, HMRC clearly states its support for those customers trying to do the right thing and complying with the rules, which we interpreted as taking reasonable care, following guidance and enlisting professional help where required.
It was also clear in its approach to tax avoidance and non-compliance. HMRC committed to challenging deliberate non-compliance and schemes that claim to avoid the off-payroll working rules or otherwise reduce the tax payable.
For those engagers or other organisations in the supply chain who fail to take reasonable care or comply with the legislation, the landing may not be quite as soft as it sounds.
Does a soft landing mean no financial risk?
By soft landing, HMRC means that it won’t financially penalise organisations for genuine mistakes. However, it will still pursue any unpaid taxes through the supply chain if a mistake is made.
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.
Engagers or end users can find out more by registering for our free webinar on the 11th March 2021 via the following link:
Use the link to access a free recording if you can’t make the date.
Alternatively, you can speak directly with Andy Webster, Founder and Director, Workr Compliance, on 07827 810851 or at firstname.lastname@example.org.
Our staff regularly write about subjects that interest them in ways that will interest our clients. Sign up to our newsletter and receive notifications when new content is added.