When the IR35 rules changed in April 2021, this signalled a significant shift for medium and large businesses.
This is one that many are still getting to grips with a year down the line. It is easy to imagine that hiring contractors off-payroll would be easy. Yet, the new rules brought a modification to the existing system muddying the waters for both contractors and businesses alike.
With a softly-softly approach in progress for the last 12 months businesses may think they have been compliant so far. Well, think again as things may be about to change. Just because a business has not had any issues yet does not mean it is doing everything right. Equally, it does not mean that an HMRC enquiry has been avoided.
There is ongoing impact for businesses that is set to continue.
How Companies Are Attempting To Solve IR35
Many may think their IR35 approach is water-tight and will stand up to scrutiny by HMRC. However, there has been much misinformation. Even taking a slightly dubious approach or being on the receiving end of bad advice could lead to issues. There are some grey areas within IR35.
This is a highly complex area, and many businesses are taking different approaches. This is true even within the same sector. However, the way IR35 status is dealt with can be the difference between a piece of work being affordable or unaffordable, so it is unsurprising that different businesses reach different conclusions.
This can be challenging for specialist contractors swapping between businesses. It can also lead to unforeseen problems where contractors have not been treated correctly. Put simply, the interpretation of IR35 status can be wrong and lead to an enquiry.
HMRC IR35 Enquiries
Since April 2017 with changes for the public sector IR35 rules, there have been many cases of HMRC enforcement reviews. These have been spread across the media and in many of the biggest cases HMRC have been successful.
Their pursuit of income tax and NI liabilities leading to penalties for non-compliance are significant. Although there have been few cases since April 2021 from medium and large businesses, the honeymoon period is over. Enforcement reviews are already happening with certain industries. These are set to ramp up and cut across a wider range of sectors now. This ongoing impact of IR35 is a significant issue for a range of businesses to consider.
There is no easy solution to this issue. Some organisations act cautiously, others are more liberal and presumably hope for the best. However, the risks of non-compliance can be crippling for a business – even one in a good financial position.
Those working within the IR35 rules should prepare for future scrutiny at some time. They should also consider that a successful enquiry into one case could lead to a domino effect with others. Businesses should take the time to re-examine their current practices with a legal expert in IR35.
Now is the time to take action to avoid future issues. Being ready and complying with legislation to the closest letter of the law is wise. Perhaps IR35 simply needs to be seen as a potential commercial risk where businesses use it.
Will you pass an HMRC IR35 enquiry?
Take our 5 minute online IR35 risk assessment to find out
HMRC’s soft landing period has ended and IR35 enquiries will soon begin in the private sector. Make sure you identify any risk areas and ensure you’re managing it correctly.