IR35 reform: One year on

The soft landing for IR35 reform in the private sector is officially over, how should businesses protect themselves?

With the new off-payroll working rules in place for exactly one year, it’s time to take stock of important events so far, the state of the industry, and what the future looks like for engagers of contractors. As the soft landing transition period comes to a close, HMRC’s light touch approach to IR35 isn’t something businesses should be fooled by, Qdos CEO, Seb Maley warns.

The IR35 legislation, originally introduced in 2000, was subject to reform in the public sector on 6th April 2017 which has since been extended to the private sector on 6th April 2021 after a year long delay. This placed responsibility for IR35 squarely with medium-large businesses for their engagements with contractors.

The year since private sector reform implementation has been by no means quiet. With the publication of CEST usage data, numerous tax bills handed out to government departments, multiple reports into the impact of reform and more.

Take a look at our full timeline of the important events since private sector reform on our free information hub IR35 reform: One year on.

 

Say goodbye to the soft landing

The soft landing transition period is officially over as of 6th April 2022. This means that a years’ worth of HMRC’s apparent light touch approach to private sector compliance activity has come to an end and they can now begin issuing financial penalties – in addition to the original tax liabilities – for non-compliance.

Is it just a matter of time before HMRC start pursuing private sector businesses, or have they already begun?

Qdos CEO, Seb Maley comments:

“We have already seen numerous letters being sent to private sector firms, with detailed questions being asked about how they responded to the reform and what the outcome of their determination process was.

Far from the soft landing HMRC promised, it only took a matter of months before they actively began to police the new rules.

Companies who took expert advice and implemented a robust process can, however, remain confident that any probe from HMRC can be successfully managed”

Consider following Seb on LinkedIn and keep up to date with important industry insights.


 

Risks of the soft landing: Where might HMRC focus next?

The soft landing of private sector reform, which seemingly gave engagers more time to complete compliance preparations, in reality, may not have helped the industry whatsoever. The assurance of a soft landing may have lulled some engagers into a false sense of security, but it is clear that HMRC have been busy gearing themselves up for widespread compliance activity.

With HMRC already allocating more resources to tax investigations, we are left wondering where HMRC’s focus will lie this year. With the end of the soft landing to consider, it would be safe to assume that the revenue and customs office will increase their focus on both IR35 and employment status as a whole.

It should be remembered that the number of tax investigations in the six months leading up to the end of 2021 had risen by nine percent, resulting in an average of 1,062 investigations per day. With such an increase in tax investigations, it would be wise for businesses to prepare and protect themselves as best they can for the future.

 

How can businesses protect themselves for the year ahead?

IR35 Audits:

An IR35 audit is a bespoke service designed to ensure complete compliance by reviewing processes and effectively demonstrating due diligence with the use of a detailed report.

Essentially, an audit involves a thorough review of business operations surrounding engaging off-payroll workers. By identifying practical solutions and including ongoing support, an audit of this kind helps businesses fully come to terms with their new IR35 responsibilities.

Here’s how an IR35 Audit helped our partners at Lorien: “As a result of a comprehensive audit, we have made several changes to how we engage with contractors across our business and the recommendations of Qdos have been instrumental in influencing some of those decisions. I would not hesitate to recommend the partnership to other organisations who see the value of working with contractors and look forward to working with them in the future as we focus on remaining compliant and reducing our regulatory risk”

Take a look at the full case study here.

Consultancy:

Bespoke consultancy services allow for a package of services and support custom-built to meet the needs of your business. Specialist consultancy teams, such as those here at Qdos, are able to assist with day-to-day queries and provide businesses with everything needed to understand IR35 compliance in this new and ever-changing post-reform landscape.

Qdos has been providing tax consultancy services since 1988 and IR35 consultancy since 2000. Bolstered by the experience of Head of Tax, and former HMRC Inspector of Taxes with a specialism in IR35, Nigel Nordone. Backed up by Qdos’ Employment Status Manager, Kate Cox, a trusted representative of contractors under IR35 enquiry with extensive experience completing thousands of IR35 assessments.

We have helped thousands of organisations with their ongoing IR35 compliance and are happy to help answer any questions. For more information on any of the above services, feel free to get in contact with a member of the Qdos team to discuss your options.