The Off-Payroll Working legislation was extended to the private sector from April 2021 in the Government's attempt to reform IR35.
It was Government’s intention to try and equalise the tax treatment for employed and self-employed workers but the jury is still out on its success.
Increases in tax charges often lead to an influx of alternative models and so-called “solutions”. IR35 is no different. There have been several new schemes marketed, such as ‘mini-umbrella companies’ and conversions to ‘statements of work’ that promise to reduce tax and NIC payable by avoiding the IR35 legislation reforms. These schemes should be treated with great care, as always, because ‘one size fits all’ solutions often are not commercial or fall foul of the anti-avoidance rules.
HMRC has brought several successful cases before tax and employment tribunals and even higher courts successfully.
Both the private and public sectors have made use of the HMRC CEST (Check Employment Status) tool to determine the status of their engagements and decide whether or not to apply IR35. The industry is now seeing cases where HMRC has disregarded the CEST results where they deemed the questions had been answered incorrectly.
We are also hearing about errors in the implementation of IR35 by several key Government departments with HMRC having some success in challenging their IR35 decisions. In particular HM Courts and Tribunals Service, DWP and the Home Office have all been reprimanded and agreed settlements with HMRC, including interest and penalties. In the case of DWP, the settlement was £87.9m and the Home Office agreed on a settlement of £29.5m.
One of the reasons for the difficulty in assessing a worker's status is highlighted by a recent report from HMRC that 21% of the CEST tool outcomes were uncertain which leaves a significant portion of contractors in the dark.
Understanding worker supply chains is now more important than ever to ensure you are compliant with IR35.
Whilst labour supply chains can be complex, especially where intermediaries are present (i.e. agencies), HMRC expects engagers to have an appropriate due diligence process in place. As ever, a lack of knowledge or understanding is unlikely to be a suitable defence when HMRC assesses additional PAYE and NIC liabilities.
IR35’s soft landing period should be used wisely by sense checking your processes and procedures to ensure they are still fit for purpose, working as planned, and able to stand up to HMRC inspection.
Our IR35 specialists can assist you in understanding your obligations under IR35 and help you reach an accurate IR35 determination for each engagement.
We can sense check CEST tool determinations to ensure that the questions have been answered correctly.
Engaging a suitable Solicitor specialising in employment law and IR35 will help ensure that engagement contracts are suitably drafted. We can recommend the right specialist for you.
As always, if you have any queries on IR35, Off-Payroll Working or Employment Taxes in general please contact our tax department on 01254 688100.
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