Just how random is HMRC’s IR35 compliance activity? Qdos’ Operations Director, Nicole Slowey, takes a look
When it comes to tax enquiries and investigations, the general assumption is that HMRC randomly identifies individuals and businesses. This isn’t strictly true, particularly if we’re talking about IR35 compliance and the off-payroll working rules.
At Qdos, we’re noticing some clear trends
With the help of our fantastic tax consultancy team, we always have our fingers on the pulse, meaning we’re quick to identify and assess any trends in HMRC’s activity. Here are just a few of the things we’ve noticed.
After targeting specific sectors, the tax office has broadened their focus
Throughout last year it seemed HMRC were set on targeting specific sectors, dipping in and out of energy, tech, and financial services at first, targeting sectors known to be large utilisers of the contractor workforce.
I recently suggested that HMRC would likely broaden the scope of their investigations, and it appears that they’ve done just that. With HMRC beginning to request information from industries across the board including manufacturing, engineering and logistics.
HMRC’s Business Risk Review touches upon off-payroll
Alongside engaging in specific off-payroll compliance activity, it appears that HMRC’s ‘Business Risk Review’ also now includes an off-payroll questionnaire. A Business Risk Review, as introduced in October 2019, is a risk assessment process employed by HMRC to help larger businesses understand how to manage their tax compliance.
The review focuses on three key areas: systems and delivery, internal governance, and approach to tax compliance. In some circumstances, HMRC have even gone as far as to identify the outstanding tax liability there and then.
When HMRC gathers information in this manner concerning off-payroll compliance it should be handled with care. In most instances, the initial responses to the questionnaire will be followed by far more detailed questions around data, practices and processes relating to IR35.
End clients under the spotlight, what about fee-payers?
Interestingly, so far, most compliance activity has been focused on end-clients, with fee-payers (such as recruitment agencies) yet to face scrutiny from HMRC. Whilst end-clients are responsible for the decision making around the off-payroll rules, agencies play a key role in the chain and could present HMRC with an alternative route in to an enquiry.
With HMRC keen to recoup as much revenue as possible, how long this will continue to be the case remains to be seen. As such both end clients and fee-payers should ensure their compliance is airtight and that they work closely together on IR35 processes. If engagers have any doubts about their compliance processes, we recommend they get in contact with an industry expert who can help them explore their options and alleviate some of the compliance stress.
Compliance activity is on the increase, but the off-payroll rules are manageable
Whichever way you look at it, HMRC is increasing its IR35 compliance activity. With the tax office yielding £34bn in extra tax revenue over the past year according to HMRC’s annual reports, which whilst less than their £36bn target, showed a marked increase when compared to their total for the previous year which sat at £30.8bn.
Despite this, the off-payroll rules are manageable with the right approach. Earlier this year we managed to successfully shut down one of HMRC’s first IR35 checks since the implementation of the off-payroll working rules in the private sector.
This process was made easier, in part, through the use of our complete compliance service, Status Review. It allowed us to respond to HMRC’s request for information with comprehensive evidence of our clients proactive approach to their tax compliance.
Such instances only go to prove that, with the right approach, businesses can still safely engage and place contractors outside IR35.