IR35 compliance: HMRC’s ‘soft landing’ approach changed on 6 April 2022 – are you prepared?

Off-payroll working (IR35) rules have continued to be a source of confusion and frustration for employers and contractors alike since the government introduced new rules on 6 April 2021 designed to crack down on disguised employment through personal service companies (PSC). In this article, we examine the latest changes and what employers need to consider to ensure they don't fall foul of HMRC's changing stance on IR35 compliance.

Status determination: clear as mud

HMRC's Check Online Status for Tax (CEST) tool is designed to give users an indication of HMRC's view of a workers employment status for tax but has proved unreliable. Even government departments have been left with hefty tax bills having relied on inaccurate status determinations, with the DWP and MOJ owing £87m and £72m respectively.

In the recent case of Basic Broadcasting Ltd v HMRC, the First-tier Tribunal ruled that television presenter Adrian Chiles was not subject to IR35 rules – despite previous determinations by HMRC that Mr Chiles' work for ITV and the BBC was governed by hypothetical contracts of service not for services.

What is changing?

Following the changes in April 2021, HMRC implemented a 12 month 'soft landing' for private companies, allowing employers to get their house in order. Now, HMRC's position is moving from one of education to enforcement. Justifying the upcoming changes in 2020, HMRC reported that continued non-compliance with IR35 could cost the government purse £1.3bn by the 2023-2024 financial year. 

HMRC has already begun to notify the oil and gas, banking and finance industries of upcoming compliance checks. Other sectors are likely to follow and financial penalties for non-compliance may increase as a means to recover lost revenue.

Steps you should consider

Ensure you understand the rules and implement refresher training for relevant employees if needed. HMRC does not consider reliance on CEST or other automated tools to be an excuse.

Audit your existing relationships with contractors and PSCs. Consider updated status determination checks if things have changed.

Check your contracting, status determination and payroll processes are fit for purpose, in advance of possible compliance checks. While fines for non-compliance are likely, associated tax bills can be significant and could be fatal for businesses still struggling to recover from the effects of COVID-19.

For further information on how these changes may affect your business and to arrange an audit of your current arrangements, please contact any member of ALG's Belfast Employment team. 

Date published: 10 June 2022