Qdos Head of Tax explores the key takeaways from the latest off-payroll compliance activity
As we approach the end of the year, everyone starts to get reflective. I’m no different and have spent some time looking back, too.
In 2023, we’ve seen real progress, with more businesses taking a pragmatic approach to managing the off-payroll rules.
This couldn’t have come at a better time, if I’m honest. HMRC continues to increase its compliance activity – as evidenced by the 17 checks currently in progress on existing Qdos clients. Among other things, this is keeping us all busy.
With that in mind, here’s a brief run-through of all the latest developments relating to the off-payroll working rules.
17 IR35 checks open
First up: we currently have 17 off-payroll checks ongoing, which is telling enough of how important HMRC sees this legislation.
Some of these checks have been ongoing for more than 12 months – a good reminder that they can be time-consuming, costly affairs.
Critically, three of these checks were launched following a Business Risk Review
. These reviews give tax officers access to your tax records.
But along with helping ensure tax compliance, these checks can escalate into full-blown tax investigations – including off-payroll enquiries.
The importance of reassessing contractors underlined
Ahead of the new year – and a fresh start – I thought it wise to share some advice.
A trend I’ve witnessed recently is that many businesses assume contractors only need their IR35 status assessed once, before engagement. In reality, contractors should – in an ideal world – be re-assessed every six months.
We’re seeing this crop up repeatedly in HMRC’s compliance checks, with queries into reassessments dating back 12 months from the start date of a check.
So, it’s sensible to start planning for and conducting regular re-assessments. Bake it into your New Year’s resolutions, perhaps.
IR35 assessment methods under the microscope
Added to this, HMRC has a growing interest in how
IR35 status decisions are reached, and what system is used – whether that’s CEST or, say, an IR35 contract review
Quite rightly, CEST has its critics – everyone here at Qdos included – and its determinations are sometimes even dismissed by HMRC, leaving you stuck between a fundamentally flawed tool and an inconsistent overseer.
Naturally, independent status reviews are advisable, as is using more nuanced systems than the blunt instrument that is CEST.
The key takeaway from this one is that IR35 determinations must be made with ‘reasonable care
’ – HMRC is scrutinising this closely.
Control brought into sharp focus
Additionally, the element of ‘control’ is under greater scrutiny. In active checks, we’ve seen HMRC requesting documents detailing requirements, expectations and the daily responsibilities of each contractor.
This extends to the end client’s business policies – like IT or security policies – that contractors need to adhere to, suggesting that the contractor is perhaps part and parcel of the business, like an employee.
This is a relatively new avenue for HMRC to take during off-payroll enquiries, and one worth being aware of.
Wider supply chain compliance
HMRC is also digging into supply chain due diligence and outsourced services.
By this, I mean whether an outsourced service is genuine or merely a provision of labour disguised as a consultancy agreement, for instance.
In my view, the tax office is looking to catch out the many businesses that aren’t up to speed on the finer details of the legislation.
My advice is to have your supply chain and outsourced service providers audited
from an IR35 perspective.
Confirmation of double taxation resolution
Finally, some good news. In the Autumn Statement, the Chancellor confirmed that the so-called ‘double taxation’ of IR35 under the off-payroll rules will be resolved.
Double taxation occurs when a business is handed a tax bill for incorrectly engaging a contractor outside IR35. The gist of it is that HMRC doesn’t offset the tax already paid by the contractor during that engagement – hence it being coined ‘double taxation’.
True, it wasn’t the reversal of the rules – as many contractors and businesses would have hoped for – but it certainly reduces the perceived risk of engaging these workers.
This will come into effect on 6th April 2024.
Kaye Adams wins IR35 case
On 29th November, it was revealed that Kaye Adams won her IR35 case, after almost a decade of contesting it.
HMRC made its first enquiries into Ms Adams’ IR35 status in 2014, concerning contracts held between her limited company, Atholl House Productions Limited, and the BBC, spanning 2013/14 and 2016/17.
In the intervening nine years, the case – carrying a reported £140,000 tax liability – has bounced through the tax tribunal system, from first-tier to upper-tier and all the way to the Court of Appeal, back down to a first-tier tribunal.
Above all else, it’s a reminder of the complexity of IR35, not to mention how long these cases can drag on.
As you can see, there’s a lot going on in the world of IR35 – which is potentially a sign of things to come next year.
As ever, in this environment, compliance is essential. Alongside watertight IR35 compliance processes, insurance can help mitigate the risk presented by the off-payroll rules further.
For more information on how Qdos can help your business manage the off-payroll working rules, get in touch on 0116 478 3390 or [email protected]