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HMRC Release IR35 Compliance Guidance Ahead of April Reform

IR35

HMRC have published a briefing document ahead of IR35 reform in April 2021, with a raft of promises about how they will help UK businesses to comply with the new rules. This includes a stated intention to collaborate with businesses and support those who are trying to do the right thing.

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The principles outlined in the document suggest a more understanding approach from HMRC, which may have stemmed from the issues experienced in the Public Sector following the reforms in 2017. However, this doesn’t mean that it’s safe for clients to relax about IR35. Non-compliance, or failure to prepare, could still prove to be an expensive mistake, however understanding HMRC promise to be.

The effective dates have been clarified

HMRC have confirmed that it’s the date of performance of work that will determine whether the new rules apply or not. Work completed before 6th April 2021 will not be covered by the reform. This will hopefully avoid the scramble to receive payment before the reform comes in, which caused some issues on public-sector contracts back in 2017.

What does HMRC’s promise of a “light touch” actually mean?

HMRC have repeated their statement that businesses will not receive penalties for non-compliance in the first 12 months unless there is evidence of deliberate non-compliance. This would appear to suggest that end clients who “do their best” have nothing to worry about, but this has been dismissed as a red herring by some commentators.

Mis-management of the reform could still leave you with outstanding liabilities that need to be paid, and these are likely to far outweigh any penalties that HMRC have promised to forgo. The only sensible course, for those end clients and recruiters who are not yet ready for IR35 reform, is to press forward urgently with their preparations.

Retrospective IR35 enquiries are not really ruled out

HMRC have repeatedly suggested that they won’t open new enquiries where IR35 status changes as a result of the reform, but this still can’t be ruled out. By reserving the right to investigate if they suspect “fraud or criminal behaviour”, HMRC have given themselves the ability to carry out compliance activity however they see fit.

Targeting deliberate non-compliance

HMRC’s promise to challenge deliberate non-compliance has been widely welcomed, not least because it provides hope that the requirement for “reasonable care” in IR35 determinations will be enforced. This would tackle the widespread fear that contractors will be incorrectly forced inside IR35 via blanket determinations.

It remains to be seen whether this promise translates into action, but it’s another reason to make sure your clients are prepared to assess IR35 correctly.

Challenging tax avoidance schemes

This is another promise that HMRC have made several times, but its inclusion in this guidance suggests that they have learned some lessons from the public-sector reforms in 2017, when an explosion of tax avoidance schemes were aggressively marketed at vulnerable contractors who were looking for ways to recover their reduced take-home pay.

We very much hope that HMRC are true to their word and target those running tax avoidance schemes. As always, it’s vitally important to ensure your contractors don’t get caught up in them. 

Specialist IR35 compliance team

The briefing document also announces that HMRC will use a specialist team to carry out all off-payroll working compliance activity, help businesses to comply, and to intervene when they find non-compliance, which suggests that they’ll be paying very close attention to how the reform is managed.

What does all this mean for clients and recruiters?

While the briefing document does provide some clarity regarding HMRC’s plans for compliance following April’s reform, it’s important for end clients and recruiters alike to avoid being distracted by the apparently collaborative approach; it’s still vitally important to be fully prepared before the reform hits in April.

If you need help with your preparations, or if we can help in any way, please call or expert team on 01296 468483 or email info@orangegenie.com.

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