Her Majesty’s Revenue and Customs (HMRC) have released guidelines that outline the various ways individuals and organisations will be supported in light of IR35 changes.
Changes to the off-payroll working rules are due to come into force on 6th April 2021, having been delayed a year due to the impact of COVID-19.
Currently, IR35 applies if a worker or contractor provides their services to a client through an intermediary.
However, incoming changes mean that the responsibility for determining whether the rules apply will shift from the contractor’s personal service company, to the client organisation engaging them.
This means that medium and large-sized private and voluntary sector organisations, in addition to public sector organisations, will be expected to assess the contractor’s employment status for tax purposes.
Building on previous guidance issued last year, HMRC have stated they will take a ‘light touch’ approach to penalties.
This means customers will not be expected to pay penalties for inaccuracies in the first year after the changes are made unless there is evidence of deliberate non-compliance.
HMRC has further stated that, if a mistake is made, they will support the client organisation in understanding how to apply the off-payroll working rules correctly. It has also said it will encourage the client to “self-correct errors” before intervening further.
HMRC have also said that they will undertake robust risk assessment activity in order to identify and target the areas where customers are most likely to apply the off-payroll working rules incorrectly.
They have also pledged to challenge customers who are deliberately non-compliant and remind organisations that they have the power to publish details of deliberate defaulters to encourage them to put their tax affairs in order.
Recent research showed that, as of January 2021, over half of contractors (57 per cent) stated that they have not yet heard from their end client regarding this reform. In addition to this, over four in five have not received a Status Determination Statement (SDS), outlining their perceived IR35 position.
Almost three-quarters of respondents stated that changes to the off-payroll working rules would be the biggest barrier to engaging contractors.