HMRC Clarifies Plans for IR35 Rules on Companies Hiring Contractors
HMRC has issued clarifying statements on how it intends to enforce its IR35 rules around off-payroll employment and the hiring of contractors.
The relevant legislation in these contexts is being updated with the new rules scheduled to come into force as of April 2020, from which point large companies will have a responsibility to consider the employment and tax status of anyone they hire as contractors.
Previously, the responsibility for determining the appropriate status of someone using a personal service company (PSC) had been left with the individual providing their services.
Expectations are that the new rules will have the effect of bringing in somewhere close to an extra £3 billion to the Treasury in the four years after they’re introduced.
Small businesses will not yet be made responsible for taking decisions regarding individuals who work for them via a PSC, with that responsibility still set to lie with contractors themselves.
Crucially, in its recent statements on the matter, HMRC made clear that it only intends to apply the updated IR35 rules retrospectively when it has reason to suspect fraud or criminal behaviour.
It was also made clear that the updated legislation pertaining to these issues is not designed to prevent or deter anyone from providing services and working via PSCs but rather to try and ensure that everyone who does so complies with existing tax regulations.
HMRC is providing related support and guidance on these issues, including via an “advanced online tool”, all of which should help companies get it right regarding IR35 and their hiring of contractors.
However, there have been some concerns raised about a potential lack of clarity on what situations HMRC will or will not retrospectively investigate.
“The statement [from HMRC] is slightly ambiguous and is not entirely clear on what this would mean in practice when people perhaps previously haven’t applied the rules correctly,” said Susan Ball from the tax consulting and auditing firm RSM.
Nonetheless, Jon Stride from the Association of Taxation Technicians, has welcomed the clarifying statements from HMRC and described the need for a suspicion of fraud or criminal activity to be present before any retrospective investigations are initiated as representing a “high bar to clear”.
