IR35 compliance (Off-Payroll Working Legislation) remains an issue for many businesses. It can be a long, drawn-out process and some organisations have been in discussion with HMRC for several years. While the rules have not changed, we’ve noticed that HMRC has refreshed its approach to evaluating compliance in some key cases.

HMRC’s fresh approach to IR35 compliance.

HMRC are now asking for more details from IR35 clients and have committed to 2,500 more compliance staff in 2022-2023 which will almost certainly include off-payroll compliance resource, so HMRC is refocusing its efforts across the board. The next level questions focus on how robust IR35 compliance processes are and they have started taking sample Status Determination Statements (SDSs) for scrutiny.

The tax office has also incorporated IR35 compliance into its Business Risk Review+ (BRR+) process. Organisations subject to a BRR+ need to complete HMRC’s ‘Off-payroll Working and Employment Status & Intermediaries Questions’ document. The questionnaire aims to discover the scale of the contingent population, the use of Personal Service Companies (PSCs) and the IR35 compliance processes in place. These businesses also need to identify supply chain partners such as recruitment or consultancy firms.

The track record of some of the key public sector cases showcases HMRC’s harsh stance on non-compliance.

Contracted Out Services – a specific focus

HMRC is also asking hiring organisations to provide the number and names of Consultancies, Main Contractors and other contracted-out services they are using. A fully contracted-out service will often involve the provision of goods and materials, as well as labour and will usually have an opportunity for profit, beyond taking a percentage of the worker’s fee’

Ultimately, it is the hiring organisations who are responsible for accurately assessing the service provision between them and their suppliers. If no assessment is made or an incorrect assessment made due to a lack of reasonable care, the result would be non-compliance with the legislation and the business could be fined. Businesses must be familiar with the legislation to ensure appropriate processes are in place when engaging suppliers.

Compliance activities should include a robust assessment and communication that both parties agree to the outcome of the assessment. Businesses that can’t prove that their processes are robust risk being fined by HMRC.

The cost of non-compliance in the public sector

£9.2M – HS2

£87.9M – Department of Work and Pensions

£29.5M – Home Office

£12.5M – Ministry of Justice

Most of these fines result from a lack of knowledge and a lack of demonstrable compliance. However, IR35 compliance can be achieved and is being achieved by many organisations that have taken a robust approach to managing IR35 risks.

The cost of compliance will certainly be less than that of non-compliance.

Whether your contractor workforce is vast or tiny, we want to help clients avoid the potential mistakes that might be incurred by business’ individual practices, and offer them total confidence that despite IR35, there won’t be any hurdles in accessing and utilising contingent labour.

If you are concerned about your IR35 systems or processes we’re on hand to help. Get in touch with James Millward, head of integrated services for more information james.millward@morson.com