26th May 2022
Written by Alice Hickling
Former HMRC Inspector and Qdos Head of Tax predicts what lies ahead for businesses that engage contractors
With a year passed since IR35 reform was implemented in the private sector, HMRC’s soft landing period is at an end, and as we begin to see signs that HMRC has restarted compliance activity, 2022 looks to be a busy year for the tax office.
Qdos Head of Tax, Nigel Nordone, shares his predictions for what HMRC might do next. Nigel has dealt with hundreds of IR35 and other tax enquiries since qualifying as a HMRC Inspector over 20 years ago. Since joining us here at Qdos, Nigel has been leading our tax team and providing an unparalleled level of support to our customers whichever part of the contractual chain they sit at.
Before getting into the predictions, however, let’s address this year’s developments impacting suppliers and engagers of a contracting workforce.
The soft landing has come to a close
After the introduction of IR35 reform in the private sector, HMRC implemented a 12-month grace period designed to ease businesses into the new off-payroll working rules. This so-called soft landing ensured that no penalties would be issued within the private sector relating to IR35 until 6th April 2022.
HMRC’s promise not to charge penalties, however, was arguably a red herring which lulled some engagers into a false sense of security. The fact was that liabilities for outstanding tax would and can still be charged, so a significant risk remained present.
HMRC appear to have already restarted compliance activity
It appears that HMRC have already begun carrying out their first IR35 compliance checks within the private sector. As we transition out of the designated soft landing period, this may come as a surprise to some businesses and just goes to show that HMRC are wasting no time preparing for widespread compliance activity.
So, what have these compliance checks entailed? Outwardly, HMRC have focused on information-gathering exercises. We are aware of letters sent by HMRC’s specialist off-payroll working team to organisations with the aim of finding out more about processes for engaging contractors. Not only asking how IR35 status determinations are carried out but also focusing on whether contractors are engaged directly or via an agency.
Whilst businesses receiving these letters are not being officially investigated, it is not clear whether or not HMRC will use this information to launch future IR35 investigations, as such we urge that caution is taken when responding to any such letters.
As HMRC begin to allocate more resources to tax investigations, we expect to see an increased focus on IR35 compliance within the private sector over the next six months.
Potential next steps for HMRC
Our Head of Tax, Nigel Nordone shares with us his expectations for the months ahead and their possible impact upon businesses engaging contractors.
“Whilst I have no ‘insider’ information, based on my time working at HMRC and my experience of dealing with them since I left, and following on from their pause in activity during the Covid-19 pandemic, I anticipate that HMRC’s overall compliance activity will increase considerably in the coming months and years. Therefore, going forward, I expect HMRC to increase and expand their compliance activity in the following areas.
- An increase in IR35 enquiries considering the rise in compliance check letters being sent to clients
- The off-payroll rules being rolled out to small businesses following the supposed ‘successful’ transition
- The expansion of the off-payroll rules to include the self-employed not working through PSCs such as sole traders
- Increased compliance activity in respect of outsourced service providers
- Increased compliance activity in respect of supply chain due diligence
- Reiteration by HMRC that PSCs hold no liability under the off-payroll rules, with contractual clauses that push liability back onto the contractor unlikely to hold up in an enquiry”
How can businesses ensure continued compliance?
In order to remain as compliant as possible in respect of IR35, organisations engaging contractors will need to consider a number of different options. Whilst status assessments are a necessary part of compliance, they shouldn’t be undertaken in isolation.
Despite the above, with the right processes in place, there is no reason for businesses to lose the flexibility and expertise that contractors provide.
A compliance checklist for businesses:
When considering the steps that businesses can take to ensure compliance whilst engaging contractors, ensuring a clear preparation of the following provisions would be the best place to start.
- A robust and fully compliant assessment process is in place
- Provision of regular training and communication internally
- A Contractor Engagement Policy outlining processes
- Documentation of processes and policies to ensure the availability of relevant information should HMRC request it
- Regular auditing showing adherence to IR35 processes
How can Qdos help?
- Audits: Conducting regular audits of off-payroll processes and policies
To date we have audited over 100 commercial clients in the lead up to IR35 reform and now continue to support organisations with their ongoing IR35 compliance audits.
- Consultancy retainers: This service provides regular support from a tax expert, regular training sessions, and a designated point of contact
Here at Qdos, our consultancy retainer service includes unlimited phone and email support to help answer any IR35 related queries you might have.
- Training: Frequent internal training to ensure up to date knowledge of processes and legislation
A big part of maintaining compliance with the off-payroll rules includes building an awareness and an understanding of the key IR35 status tests and the legislation itself. At Qdos we have been providing IR35 training as well as speaking at seminars and events for many years.
For more information on any of the above services, feel free to get in contact with a member of the Qdos team to discuss your options on 0116 478 3390.
