HMRC are searching for £1.4 billion they say that companies have failed to pay by having hidden employees within.
Anyone working within this sector can believe that they are talking about contractors. Yet, are contractors costing HMRC this amount?
HMRC believe that self-employed workers and potentially those working through personal service companies are causing this deficit. They believe that these people are workers and should receive treatment as such. By not including them as employees, they are avoiding employer National Insurance Contributions at the very least. This is why they are known as “hidden employees”.
There is also the question of unpaid taxes which are still outstanding. This is definitely something that HMRC are concerned about at this point in time. That is evident from the direction they are going in.
Of course, most of this total that HMRC say they are pursuing as of 31 March 2021 is based on older issues. That is to say, it is what is due since before the new IR35 rules of 2021. It also comes off the back of HMRC’s successful pursuit of some working as contractors.
As an example, the Alan Parry case has netted them a hefty £356,000 to be paid. With this in mind there is a general feeling that HMRC believe there are still thousands of companies paying contractors outside IR35 when they should be employees. As we know, the test for this is complex and their own determination tool, CEST, often cannot give a complete answer.
This is something that many feel really needs attention to improve the system.
How can they expect businesses to rely on it, when the alternative is expensive professional advice?
After the IR35 rules change of April 2021, HMRC were considered to be reasonably soft on medium and large businesses.
After all, it was the first time they had been responsible for IR35 determinations. Before this it had been the responsibility, and liability, of the contractors themselves. Well, this soft touch is no more.
HMRC are going full throttle to get back what they think is owing to them. There is no hiding from them. If they think that something is due, they will be coming to claim it back.
The risk seems to be greatest for businesses that hire many off-payroll workers that fall outside IR35.
Well, that kind of figure is doubtlessly going to leave HMRC on the hunt for blood. Much of it will be pre-2021, but it could still make an impact now. If they have concerns about this issue, they could be at the gates of current businesses and contractors as well.
This is worth bearing in mind when thinking about future contracts. Make sure the criteria are met for working outside IR35 to stay safe. As to how much of the £1.4 billion will be recouped, that remains to be seen. Given their current dealings, we can only wonder what will happen to it if they do.
Some reinvestment would be great though, even if only into their own CEST tool.
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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.