IR35 compliance overview: HMRC applauded over handling of 18-month investigation

HM Revenue & Customs (HMRC) is being applauded for its “pragmatic” method to conducting an 18-month IR35 compliance examine on a world manufacturing enterprise that engaged round 300 contractors, with the overwhelming majority working in IT or technology-related roles.

The firm in query, which has requested to stay nameless, first discovered itself in HMRC’s crosshairs in September 2021, when the federal government tax assortment company wrote a letter to it querying its IR35 compliance procedures.

The organisation had greater than 300 contractors engaged on the time who have been predominantly engaged on an outdoor IR35 foundation, and it was topic to quite a few questions on the way it decided the employment standing of the contractors on its books.

The investigation is believed to have been among the many first set of compliance checks HMRC had launched into for the reason that onset of its reform of how the IR35 guidelines work within the non-public sector, which occurred in  April 2021.

At the time, the medium-to-large companies in scope of the reforms have been informed HMRC can be offering a 12-month grace interval the place it could take a “light-touch” method to implementing the reworked guidelines to provide companies time to familiarize yourself with their new-found duties.

This is as a result of from April 2021, medium-to-large non-public sector companies grew to become accountable for figuring out how the contractors they have interaction needs to be taxed, primarily based on the work they do and the way it’s carried out.

Previously, it was as much as contractors to determine for themselves whether or not their engagements meant they need to be handled as an worker for tax functions (often known as inside IR35) or as an off-payroll worker (exterior IR35).

However, within the view of HMRC, this technique of self-declaration made it attainable for some contractors to intentionally misclassify their engagements so they may artificially minimise the quantity of employment tax and National Insurance Contributions (NICs) they’re liable to pay.

In the case of this unknown agency, it’s unclear what gave HMRC trigger to position the corporate underneath investigation, however the organisation credit the work it did with contracting authority Qdos to make sure compliance with the reforms with prompting the company to drop its investigation after 18 months.

Seb Maley, Qdos CEO, mentioned that what was notable in regards to the case was how “pragmatic” HMRC had been in its method to the investigation, which ought to go some approach to easing any considerations different corporations might need about discovering themselves topic to an analogous investigation.

“There has been so much concern surrounding the off-payroll working rules in recent years – to the point where businesses have forced contractors inside IR35 or stopped engaging them altogether for fear of falling foul of this complex legislation,” mentioned Maley.

“Above all else, the successful closure of this IR35 check – where the majority of contractors were engaged outside IR35 – is proof that the off-payroll working rules can in fact be managed. For risk-averse businesses, this should be a turning point.”

Maley added: “When it comes to IR35, in the past HMRC has been guilty of jumping to conclusions, accusing parties of non-compliance before having established the facts. The tax office’s pragmatic approach to this check was refreshing. Long may it continue.”

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