IR35 Off Payroll Working Reform, 4 months on…

Four months on since the IR35 Off Payroll Working Reform took place in the private sector and a lot has happened since then. Along with the world getting back to ‘normal’ following COVID, businesses have also been getting used to the new ‘normal’ when dealing with the world of contractors. With new obligations, policies and procedures for businesses engaging contractors, now feels like a good time to reflect on what has happened since 6^th April 2021.

HMRC Cases

While we saw a decline in enquiry work carried out by HMRC during the pandemic, in recent weeks HMRC have been active with their IR35 reviews with a number of cases being concluded, and not in the taxpayers favour…

Northern Light Solutions Limited v Revenue & Customs

First off we saw the Upper Tier Tribunal rule in HMRC’s favour in respect of a contractor providing project management services. While this case was looking at the position pre 6^th April, this has raised eyebrows over the definition of mutuality of obligation and how this may impact determinations made by businesses since 6^th April.

In this case, the contractor was engaged to work on two separate projects for the same business, with a 5 month break in between contracts. The work agreed as part of these separate contracts was clearly defined and the business could not direct the contractor to complete any other work during the periods.

While many would view this as a lack of mutuality of obligation, HMRC and the Upper Tier Tribunal concluded that the signing of the contracts alone gave rise to mutuality of obligation as the contractor was then required to work on the specific contracts agreed.

The Home Office

Next up we had the Home Office who found themselves landed with a £33million bill when HMRC reviewed their IR35 determinations and processes following the reform which took place in the public sector back in 2017.

HMRC’s view of their compliance processes was that they were ‘careless’ and they also found a substantial number of determinations to have been completed ‘incorrectly’.

This saw the liability split between £29.5million of underpaid tax, National Insurance and interest and £4million of penalties, however the penalties were suspended to allow the department to review and improve their processes and procedures.

The Department of Work and Pension

Another case in the press recently was the eye watering bill of £88million presented to the Department of Work and Pensions for errors highlighted in their compliance with the public sector reform back in 2017.

This charge related to income tax and National Insurance when it was identified that a number of their contractors were assessed incorrectly, despite the fact the department made use of HMRC’s own CEST tool for completing these determinations.

This brings us back round to the wide spread commentary that HMRC’s tool was not fit for purpose and opened businesses up to substantial risk of liabilities becoming due at a later date.

Take Away Points…

From the cases above it is clear that HMRC will not hold back in reviewing not only individual status determinations but also business processes and procedures to ensure appropriate care has been taken.

As a result, businesses in the private sector who have recently been faced with these changes should take stock now to review processes in place and initial status determinations to ensure they are both robust and correct. Following this review, changes should be made to enhance processes and procedures as well as completing re-assessments where contractor positions have changed.

Furthermore, any businesses who have not yet taken action on the changes should look to review this as soon as possible.

If you need any assistance with your compliance with the IR35 Off Payroll Working rules from April 2021, please do not hesitate to get in touch.

Find out more about our Payroll & Employment Taxes team.