Despite a brief period of uncertainty with a proposed repeal of IR35 reforms and subsequent U-turn, the absence of any further comment in the UK government’s Autumn Statement means that the IR35 reforms are firmly back on the table.
Now that the 2017 and 2021 reforms are again approved government policy, the key message for businesses that utilise off-payroll workers is that their compliance responsibilities remain. HMRC’s compliance checks in this area will, if anything, increase, so effective Workforce Risk Management remains vital to protecting a business.
Be prepared for HMRC IR35 reviews from April 2021 onwards (2017 for public sector). Most recently, HMRC have been issuing nudge-style letters requesting confirmation in writing within a 30-day time frame that the business has undertaken employment status assessments for all off-payroll labour and that any deemed employed have been correctly processed via an IR35 payroll. The letters conclude with a statement that when a review is conducted in the future and errors are found, penalties may be imposed. To mitigate those penalties, businesses will therefore require robust policies and procedures, and supporting evidence of all steps taken to demonstrate that reasonable care has been taken.
Given current economic circumstances, employers may want to use more contractors, but if there are no robust procedures in place to identify and assess any workers using Personal Service Companies (PSCs) and to ensure that these policies are reviewed regularly, the business will be at risk.
Businesses should make sure they are all treated as deemed employees when necessary.
Businesses still face risks if they engage individuals directly on a self-employed basis; they should check their employment status to make sure HMRC would not regard them as de facto employees.
Businesses should put robust PAYE/NIC due diligence processes in place for all of the outsourced workforce, i.e., where the labour supply chain includes services provided by umbrella companies, temporary labour employment agencies and other third parties. Make sure the contractual obligations are reviewed each time when procuring contractors from a third-party supplier. Don’t assume that HMRC won’t pursue the business if suppliers fail to operate PAYE/NIC when they should.
Given that we are over 18 months into the reforms, now is the time to make sure all processes and policies to deal with worker populations engaged outside the payroll are robust in advance of any HMRC enquiries. The soft landing for IR35 penalties is now over, and in addition to PAYE/NIC and statutory interest being charged by HMRC for errors, penalties of between 15% and 30% will be imposed if the taxpayer cannot demonstrate that reasonable care has been taken.
Jacqui Roberts
jacqui.roberts@bdo.co.uk