If your end client off-payroll working responsibilities haven’t yet been made a priority, it’s time to get sorted.
Her Majesty's Revenue & Customs (HMRC) has commenced its off-payroll activity, according to Andy Chamberlain, Director of Policy at IPSE.
Outlining the changes
In a joint IPSE/Markel webinar held on Tuesday 14 September, members received an outline of HMRC’s approach to policing the off-payroll working (IR35) changes. Take-aways included the reassurance that HMRC is still applying a light-touch approach to compliance activity and assisting end clients with their responsibilities. However, this came with a reminder that HMRC will seek to recover any tax due with interest, and that end clients who viewed 6 April 2021 as the starting point for considering off-payroll working changes should be aware of the penalties for deliberate non-compliance.
The requirements of the Chapter 10 Part 2 ITEPA 2003 are based on medium- and large-sized entities being responsible for making a decision about the IR35 status of every engagement; communicating that decision formally via a status determination statement (SDS); and having a ‘client-led disagreement process’ for any challenges to the SDS. In its guidance, HMRC has added the ubiquitous requirement to take reasonable care and has outlined the penalties for not doing so.
It starts and ends with the end client
End clients will be the starting point for compliance activity. HMRC’s guidance makes it clear that if the end client hasn’t taken reasonable care, then HMRC will confer the fee payer liability upon the end client – even for engagements where tax & National Insurance contributions (NICs) have already been deducted by the fee payer responsible for paying the contractor’s limited company. On the basis that the end client could be both the starting and end point of the compliance check, why would HMRC look to start anywhere else?
While HMRC has confirmed that there won’t be any penalties in the first 12 months, it has indicated that there will still be penalties for deliberate non-compliance. The question is: at what point does failure to take reasonable care become deliberate non-compliance? Could ignoring the rules for the best part of 12 months be perceived as deliberate non-compliance?
Deciding who to investigate
We don’t know how HMRC will select end clients for compliance checks – presumably, they have a great deal of market intelligence at the ready. HMRC will already know the larger engagers of contractors, but filed accounts with Companies House may offer further detail, as will press reports and information gleaned from public websites. All of this will no doubt feed into HMRC’s decision as to which end clients to select for enquiry.
Where end clients are engaging directly, a review of the company’s Real Time Information reporting could be a starting point. For those engaging via agencies (where the end client is not the fee payer), the recruitment agency’s intermediaries reporting identifies payments made gross to contractors, so it’s unlikely to be difficult to link the contractor to the end client engager.
As the compliance checks start more, about the approach HMRC is taking will become clear and we’ll keep you up to date with the latest guidance.