Since then Deployment of IR35 tax avoidance reform to the private sector in April 2021It’s clear that IT departments have a deeper understanding of these rules than some other professions.
However, this can lead to false confidence, and HM Revenue & Customs (HMRC) may or may not comply with some of the workarounds it has introduced to meet the April 2021 IR35 compliance deadline. I’m trying to warn tech companies that they may not have reached the value. For rational care.
Under the terms of the reform, end-user organizations should individually assess the tax status of each contractor engaged and use “reasonable caution” in deciding whether to tax in the same way as office workers. Is expected (within IR35) or as an off-payroll employee (other than IR35).
As stated in HM Revenue and Customs’ Off-Payroll Guidance, end-user organizations found to have not taken reasonable care in deciding how to tax contractors: Workers’ Income Tax and National Insurance You are responsible for covering your debt.
so Employer breaking news Release In August, HMRC warned of the use of false IR35 workarounds that appear to be commonly used in the technology sector. These shortcuts are often deployed in response to IR35 compliance strategies adopted by clients in other sectors. For example, financial services companies have banned the use of contractors altogether.
This effectively blocks client access to most of the skilled and flexible workforce when skill competition is fierce, attracting contractors’ talents to deliver projects on time. It is natural that alternative routes for this will be considered. However, if these workarounds look simple, they can be simple. In fact, many are embedding this risk in their supply chains, exposing both IT suppliers and end-hilers to the risk of IR35 fines and tax claims at a later date.
The two most common alternative routes in this sector are the use of contracted services as a means of indirectly involving the contractor and the outsourcing of the contractor’s statement of work (SoW) to an external supplier. Both give the false impression that the IR35 rules do not apply, but this is not always the case.
The IR35 definition of “client” can move within the supply chain where a true outsourcing service or SoW is provided. This effectively shifts the “reasonable care” obligation to the “client” and transfers both the risk and responsibility for completing the IR35 assessment to the SoW provider. However, during the investigation, HMRC may determine that the responsibility of the “client” is at the top of the chain.
HMRC breaking news further warns: “If you do not appear to be the client responsible for reviewing off-payroll rules of employment, or if you are asked for consent, you need to make sure you understand the components of a fully contracted service. There are these arrangements. If the essence of the services provided is the supply of labor, written terms do not change this fact. “
By passing responsibility and risk into the supply chain, it is assumed that, as an organization, external suppliers are taking a diligent and informed approach to IR35. However, in reality, you may be using online or automated tools to determine your status, such as HMRC’s own tax audit (CEST) tool.
IR35 is a complex law, and like any other automation tool, CEST is as useful as the information entered there. CEST itself suffers from IR35 nuances and returns unconfirmed status for about 20% of its roles. These require a professional and human-led approach to result in accurate IR35 status determination.
There are some risks to this. In particular, it meets the definition of genuine outsourcing and the definition of a party that HMRC considers to be a “client” that does not meet reasonable legal requirements for care. IT companies and clients who use this approach to address IR35 are at increased risk of hidden non-compliance, surprising tax invoices, or HMRC fines at a later date.
One of the key lessons learned from the public sector IR35 tax bill, which has been gaining attention lately, is that HMRC does not undertake enforcement measures or prosecute violations promptly. Instead, it can take months (and possibly years) for HMRC to take legal action.
This allows you to accumulate unpaid taxes and national insurance contributions in the following cases: The Department for Work and Pensions totaled £ 87.9 million between 2017 and 2021.. Substantial and Unexpected Billing – For many private organizations, costs of this size can have a significant impact on growth and stakeholder credibility, and in some cases can completely change the course of business. ..
There are some small but important changes that can be made to make a clear distinction between employees and contractors. For example, setting individual policies for both parts of an organization’s employees makes it easier to identify the roles that can be offered outside of IR35. If others fail to make this distinction, there is a competitive platform for attracting the best specialist talent for your project.
It is important to note that IR35 compliance is an ongoing task. The compliance procedures that many companies implemented in April 2021 may not be appropriate in the long run. Jobs and specifications change as the project progresses and evolves, so status decisions should be reviewed regularly to ensure continuous compliance.
Implementing these processes now means that your enterprise can continue to make the most of its flexible resources in your projects. It is safe because we have a robust and compliant system that can adapt to changes in the market and know that it will be scrutinized and go through rallies. line.
Organizations should consider seeking assistance from an IR35 consultant or law firm to review the compliance process, create a status determination statement, and review the supply chain to identify hidden risks.
HM Revenue and Customs expects companies without sufficient internal knowledge to seek outside advice on the complex areas of tax law. In fact, their guidance states that “seeking the advice of a qualified professional advisor” indicates that you have taken reasonable care.
This can be costly, but it is a budgetable, transparent cost that will greatly help prevent significant surprise debt incurred in the future.
April 2021 marks the beginning of the private sector IR35 journey, and the biggest hurdles have not yet been overcome. It is the enforcement of HMRC. Legal proceedings may still be years away, but tech companies will review (or re-review) their approach to IR35 and seek expert advice to ensure that reasonable care obligations are met. It’s never too late.
https://www.computerweekly.com/opinion/IR35-reforms-Tech-firms-warned-off-relying-on-high-risk-compliance-workarounds Technology companies warned that they rely on high-risk compliance workarounds