Overview of Recent Updates as we near 6th April and IR35 reform

Breaking down the recent publications from HMRC regarding the off-payroll reform coming 6^th April 2021

In the run-up to the implementation of IR35 reform, there has been plenty of news circling the coming changes and what contractors can expect to follow. Despite hopes of further delays to IR35 reform, we are now only one week away and any hopes of a delay seem unlikely.

With this in mind, let’s take a look at some of the most recent announcements.

 

HMRC publish IR35 ‘compliance principles’

On the 15th February 2021, HMRC published a briefing document detailing their ‘compliance principles’. This information given ahead of the reform not only details HMRC’s promises of increased support but also hinted at what we may come to expect of HMRC’s compliance activity.

It appears that HMRC are promising to take a more proactive approach in ensuring businesses understand what is required of them as far as compliance with the new rules are concerned. This seemingly more understanding approach, however, should not give anyone involved in the compliance process cause to relax.

Equally, it is not time to rule out the possibility of retrospective IR35 enquiries for contractors. HMRC have thrown a wide net when it comes to opening investigations, seemingly able to do so as they see fit.

Not only will HMRC be keeping a keener eye on deliberate non-compliance with the off-payroll rules, but they also pointed towards their further scrutiny of tax avoidance schemes. With an increase in the number of disguised remuneration schemes and non-compliant umbrella companies, HMRC have pledged to challenge these arrangements where they see them.

In addition to these promises, HMRC have appointed and will be forming a specialist team for IR35 compliance. These tax inspectors will be in place to help implement the reform and, where necessary, utilised to prevent non-compliance, suggesting that HMRC intend to pay close attention after 6th April.

HMRC’s ‘Light touch’ to compliance: a red herring?

As part of the Government’s ‘light touch’ approach to reform, HMRC reiterated that businesses will not receive penalties for non-compliance in the first 12 months, unless there is evidence of deliberate foul play. 

While on the face of it this is a generous offer from HMRC, it could be considered a red herring. If a business mismanages IR35 reform and fails to meet its legal obligations, the tax office will still expect all outstanding liabilities to be paid – and in IR35 cases, tax liability is much greater than penalties handed out. 

Final amendments to IR35 rules published

On 3rd March 2021, the final technical amendments to the incoming IR35 rules were published by HMRC as part of the budget. Here we break down what they might mean for you:

• The definition of an ‘intermediary’ has now been clarified. Where the term ‘intermediary’ once could have applied to both PSCs and umbrella companies, HMRC have made it clear that the term ‘intermediary’ excludes umbrella companies.
  
  “A new provision to address the unintended widening of the definition of an intermediary, where it is a company. This provision states that the company will meet the conditions of an intermediary where the worker has a less than material interest, but only where the payment the worker will receive would not already be taxed as employment income. This means that umbrella companies, agencies and other third-party companies providing a worker’s services will not be in scope of the rules.”
  
  
• New ‘Targeted Anti-Avoidance Rules’ or TAAR to be introduced. These rules are designed to prevent the use of tax avoidance schemes and might be intended to diminish further so-called ‘workarounds’ such as disguised remuneration arrangements.
  
  
• It was also announced that IR35 liability may be transferred between parties. While this is true, IR35 liability cannot be transferred to the contractor. This initiative seems likely to motivate members of the supply chain to fulfil their responsibilities in a way that facilitates the genuine placement of contractors. Supply chains that provide incorrect information are at risk of being handed the liability for IR35, irrespective of whether or not they are the fee-payer in the engagement.
   
  
  

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