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HMRC Publishes Compliance Principles for IR35 Rules

HMRC Publishes Compliance Principles for IR35 Rules

HMRC has issued a briefing designed to shed light on its intended approach to implementing incoming rules around off-payroll working and taxation.

The rules are generally referred to as IR35 legislation and changes to their structure mean that from April 2021 the responsibility for ensuring compliance will shift from individuals and their personal companies hired as off-payroll workers to the companies enlisting those services.

For a lot of companies of all sizes across the UK the changes could precipitate a major shake-up of how they engage with third party contractors.

From HMRC’s perspective, the aim is to bring payment structures associated with contracting into line with ordinary payroll processes and to ensure that companies take responsibility for having everyone who works for them regularly pay roughly the same proportion of their income as tax.

The off-payroll rules have been in place since 2000 but in recent years have become more prominent as an issue because HMRC has worked towards making employers rather than individuals responsible for relevant taxes being paid in these contexts.

With April 2021 not far away, companies have been told by HMRC that they will not face having to pay penalties within the first 12 months of the tougher IR35 rules coming into effect as long as there isn’t evidence of deliberate non-compliance.

“We know mistakes can happen. A mistake for the purposes of the off-payroll working rules may mean that you have not met some or all of your responsibilities, or have paid more or less tax and NICs than is due,” the HMRC briefing note explains.

“Mistakes can include payments being made to contractors without the correct deductions being made or making inaccurate employment status determinations,” it goes on.

“We will not charge a penalty if you took reasonable care to apply the off-payroll working rules correctly but still made a mistake, including making mistakes in status determinations.”

HMRC has reiterated the point that the incoming IR35 rules do not apply to self-employed people but are intended to impact situations in which individuals provide services to third parties and receive payment via a personal service company (PSC) or similar.

Officials have been keen to stress that as the rules around off-payroll taxation change HMRC will aim to be supportive and helpful to businesses that find themselves being impacted.

David Tattersall
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