IR35: The latest developments impacting businesses

10th August 2022
Written by Qdos Contractor

A round-up of the major talking points in the world of IR35

In recent years, it’s rare for IR35 not to make headline news in a month – and in July and August so far, there have been a number of high-profile developments, which businesses impacted by this complex legislation are advised to pay close attention to. 

From cases of non-compliance to the government’s long-awaited response to its employment status consultation and more, in this article, we focus on the key IR35 news of the summer. 

HMRC wins £356,000 IR35 case 

Early in July, news broke of Sky Sports presenter, Alan Parry’s, unsuccessful appeal at a First Tier Tribunal. The football commentator attempted to overturn the ruling in an IR35 case which carried £356,420.37 in tax liability, becoming the third freelancer engaged by Sky to lose an IR35 case in just a few months. 

With Sky in control of the working relationship, dictating what, when and how Mr Parry provided his services, the 74-year-old presenter’s engagement had many hallmarks of an inside IR35 contract. 

In addition to highlighting the potential cost of non-compliance, this case also demonstrates the importance of ensuring that contracts align with working practices. 

Government responds to employment status consultation 

In the same month, the government responded to an employment status consultation launched more than four years ago, in 2018. Alongside the response, new guidance was published to help businesses recognise the employment status of workers. 

Though arguably the biggest takeaway from this event was confirmation that the government has no plans to align employment status and tax status. It means that contractors engaged inside IR35 will continue to pay employment taxes without receiving employment rights in exchange – an arrangement known as ‘zero rights employment’. 

Oil and gas firms under HMRC’s spotlight 

At the same time, HMRC continues to ramp up its compliance activity in the private sector, with reports of oil, gas and energy companies facing fresh scrutiny over how they are applying the IR35 rules. This is also the experience of multiple businesses Qdos supports in the energy industry, suggesting that the tax office is carrying out sector-specific compliance checks. 

That’s not to say HMRC is only focused on this space – clients operating in several other industries have also been contacted by the tax office regarding their IR35 compliance in recent months.

£1.4bn ‘missing’ due to IR35 non-compliance 

More recently, it has been suggested that private sector businesses are collectively underpaying £1.4bn in tax as a result of facilitating disguised employment – by this, we mean engaging contractors outside IR35 when they belong inside IR35.

While HMRC’s view on the IR35 landscape should be taken with a pinch of salt, this figure alone indicates just how wide the government believes the tax gap is.

HS2 sets aside £9.5m for IR35 bill 

Yet another public sector body – this time High Speed 2 (HS2) – has revealed in its accounts that it has set aside £9.5m to cover the cost of IR35 non-compliance, bringing the total bill for mistakes in the public sector to a staggering £272.5m.

The issues, reported by Computer Weekly, stemmed from HS2 – which is an executive non-departmental public body sponsored by the Department for Transport – failing to carry out IR35 assessments on contractors because they were engaged via a third party, which HS2 believed would be responsible for determining IR35 status. 

If the third party supplies a genuinely outsourced provision of a managed service, this would be the case. But if not – and if it is merely a provision of labour – the end-client must assess IR35 status. According to Computer Weekly, HS2 is concerned about this and is working with HMRC to “assess any historic tax liability.”

So what can businesses learn from this? Above all else, that rigorous checks should be carried out to ensure that any third party or consultancy supplying contractors to businesses do so on a genuinely ‘contracted out basis’. Failure to do this could result in significant and unexpected tax liabilities. 

To learn more about how Qdos’ award-winning IR35 solutions can support your business, please don’t hesitate to contact us on 0116 478 3390 or [email protected].

Qdos Contractor
Written by
Qdos Contractor
Award-winning providers of insurance for the self-employed, Qdos are the leading authority on IR35, offering industry-leading employment status services to ensure the flexible working industry thrive. Qdos are the Best Contractor Insurance Provider 2022 and won the Queen’s Award for Enterprise in Innovation 2022 and 2017. 

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