January isn’t everyone’s favourite time of year, but here we are, and my New Year’s resolutions are still intact. For now, at least.
Last year was an incredibly busy one here at Qdos. And while this year has only just begun, things don’t look like they’re about to slow down.
There are already several milestones in the calendar; we’re expecting rulings to be handed down in some landmark cases, with dates already circled. On the other hand, some cases will be dragged back into the tribunal system following appeals against decisions that didn’t go HMRC’s way.
Here, I’ll take you through a few of the things that are already on our radar for this year – including greater resources at HMRC and what a change of government might mean from an IR35 enforcement perspective.
Off-payroll compliance checks are on the rise
HMRC now has a team of 45 staff dedicated to handling off-payroll compliance – which means the tax office has the resources and capacity to ramp up its activity considerably.
The tax authority is undertaking off-payroll compliance checks right now, and we expect that to continue – if not increase – in 2024. We’re currently supporting 17 businesses with compliance checks.
Three of these have started following the company undergoing a Business Risk Review. With HMRC sharing resources and information across these teams, we expect this tactic to continue.
Penalties to be issued if lack of reasonable care
If an off-payroll compliance check results in additional tax liabilities being due, HMRC may well issue penalties unless the end client can demonstrate that reasonable care was taken in determining IR35 status, for example.
As such, organisations must keep accurate and up-to-date records of their compliance activity and be able to prove reasonable care to prevent these additional charges.
This has been supported by the recent release of HMRC’s Guidelines for Compliance (GfC4)
which makes clear that businesses should be demonstrating reasonable care through appropriate training, record keeping and robust processes.
Simply relying on CEST (HMRC’s status assessment tool) is insufficient, too. Businesses need to make sure those completing status assessments are suitably trained to do so.
Further scrutiny of the supply chain
IR35 compliance checks don’t just look at the engagement of off-payroll workers. They also review the supply chain and any outsourced services, including the steps that the engager or end client has taken to demonstrate their due diligence.
Again, the Guidelines for Compliance offer some clarity here. The guidelines confirm that it’s the end client who will be held responsible if they’re found to not be in receipt of a genuine outsourced service:
“No matter how a service is labelled, if the service includes any element of labour supply, the ultimate recipient of these services must decide whether they, or the service provider are the client.”
IR35 reform will not be repealed
The UK is set to go to the polls next year. Quite when isn’t certain, but speaking to the press just before Christmas, the Prime Minister confirmed that it would take place before 2025.
However, whatever happens – even if there’s a change in government – we don’t expect there will be any change in off-payroll working rules. I know that this isn’t the news that many would have hoped.
But, approaching three years since the off-payroll rules were introduced to the private sector, businesses are getting to grips with them and realising that it is possible to compliantly engage contractors outside IR35.
The end of double taxation, effective 6 April, also reduces the perceived financial risk of an incorrect IR35 status determination. I expect this will help to nudge businesses towards reversing contractor bans. As a result, the picture is perhaps more positive than it has been for some time.
PGMOL case may impact how IR35 is determined
The results from the case of Professional Game Match Officials Limited (PGMOL) v HMRC – heard at the Supreme Court in June – are expected any time now. The case hinges on the tests of Control and Mutuality of Obligations (a test excluded from HMRC’s CEST tool).
The basis of the ruling from this case would become case law – so we can expect further changes to the CEST tool and HMRC guidance following its outcome.
Will CEST ever actually improve?
Every year, HMRC promises to deliver improvements and enhancements to CEST. Despite this, the tool remains fundamentally flawed.
There is simply too much work to be done to make CEST truly fit for purpose. In its current form, it’s fairly rudimentary, failing to take into account subtleties in engagements – or even recent legal developments.
Let’s not forget that CEST has only recently undergone an update, having been re-platformed onto new software, designed internally by HMRC. It’s still not entirely clear how helpful that change has been, though.
And, of course, many businesses continue to use CEST to reach status determinations, despite its shortcomings.
So – while I genuinely want to see the tool improved – do I expect CEST to somehow become miraculously fit for purpose next year? I’m not holding my breath.
Yet more high-profile IR35 cases
The upper tax tribunals for another three presenters, Adrian Chiles, Gary Lineker, and Stuart Barnes will also be heard early in 2024.
Given the individuals involved, it’s clear that HMRC’s strategy in policing compliance has been to target high-profile individuals in the hopes of securing a statement win.
However, the tax authority has an imperfect record, having demonstrated an inability to interpret the IR35 legislation in these cases. These failures have likely been a source of some embarrassment internally at the tax office.
It will be well worth keeping an eye out for the results of these tribunals. Regardless of the outcomes, however, the fact that they will go ahead is yet another reminder of how long and expensive IR35 cases can be.
A final thought
We know that both IR35 legislation – inherently complex and forever controversial – and the off-payroll working rules continue to be a source of frustration and concern. And while some things change at the start of the New Year, others will remain the same.
Qdos will continue to be on hand to offer guidance, support and insight to contractors and businesses who need help in managing IR35, this year and beyond. Don’t struggle by yourself – we’re to help with anything, from status assessments and contract reviews to legal representation and defence.
As always, you can get in touch when you need us.