HMRC already reviewing businesses for compliance with 2021 IR35 off-payroll rules

If you engage workers via third parties, including the workers own limited company, have you reviewed how the workers are ultimately engaged and if the changes to the IR35 off-payroll legislation, which came into effect from 6 April 2021, affect your business’s tax compliance responsibilities?

HMRC has already started contacting various businesses to check they have the correct processes and procedures in place to comply with the new IR35 rules which affect public sector businesses and [medium and large businesses]* in the private sector.

Even as a ‘small’ business in the private sector, the new IR35 rules require you to respond to any correspondence from a worker asking for confirmation of your size in respect of the criteria below*, which you must respond to within 45 days. The worker may request this information in order to confirm if their limited company remains responsible for the determination of IR35.

A report published earlier this month, reviewing the long term effects of the 2017 IR35 off-payroll reform into the public sector, revealed that between 15-27% of those public sector businesses who took part in the review had not heard of the 2021 off-payroll reform and were therefore unaware of the additional requirements placed on them since 6 April 2021.

You would therefore not be alone if you are currently unsure as to any new responsibilities you may have since 6 April 2021.

The best way to mitigate your business’s risk of exposure to tax and employment related challenges, interest and penalties, is to know your contractual chain and what impact this has on your tax compliance.

Even if you are fully aware of your new responsibilities within the IR35 legislation, as we are almost a year into the new regime, would now be a good time for a review of your processes and procedures by an IR35 specialist to ensure you are prepared for a potential HMRC IR35 compliance check?

* a business is medium to large for the purpose of the IR35 legislation if two of the following three apply:

  • Turnover >£10.2m
  • Assets >£5.1m
  • Employees >50

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Attention employers and those engaging self-employed subcontractors – important holiday pay judgment

A recent Court of Appeal decision has ruled a “worker”, can only lose the right to take “paid annual leave” at the end of a holiday year when the employer can meet the burden of showing:

A ‘worker’ can include employees and potentially self-employed subcontractors (even if they are self-employed for tax purposes).

If an employer is unable to meet this burden of proof, the right does not lapse but carries over and accumulates until termination of the contract. At which point the worker is entitled to a payment in respect of the untaken leave.

Whilst each case will be determined on its own facts, the principle specifically establishes requirements on the employer in respect of ensuring ‘workers’ are given the right to “paid annual leave” in a holiday period.

Do your processes and procedures enable you to meet the required burden of proof and mitigate your risk should you be faced with a challenge from a worker or employee?

9 February 2022

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