Following the change to the ‘off-payroll working rules,’ otherwise known as the IR35 legislation, on 6 April 2021, HMRC confirmed that businesses would not have to pay penalties for inaccuracies in the first 12 months, unless there is evidence of deliberate non-compliance. However, 5 April 2022 marked the end of the ‘soft landing’ period meaning that HMRC may now enforce financial penalties against businesses found to be in breach of the legislation.
IR35 reform was implemented in the private sector in April 2021 resulting in medium and large-sized businesses becoming responsible for determining the tax liability of their contractors. In recent months we have seen how the “IR35 tests” have been applied by the Tribunal in the Professional Game Match Officials Ltd decision and most recently in the Basic Broadcasting Limited decision.
The latter case, which involved the BBC/ITV presenter Adrian Chiles, exemplifies the complexity of IR35. Contrary to HMRC’s assessments, the judgment concluded that there was no underpayment of tax or NIC, as Mr Chiles was considered to be outside the scope of IR35. This judgment considered all the circumstances as a whole and concluded that he was in business on his own account. In deciding this the Tribunal took into account the number of clients he had, his ability to take on other roles that “did not bear fruit” and his reputation as a broadcaster.
This is a complex area of law and therefore businesses should seek expert advice when engaging with contractors as a failure to consider IR35 rules could result in HMRC imposing hefty fines. On 27 February 2020, HMRC estimated the reforms could recoup £1.3 billion a year by 2023-2024. This suggests IR35 compliance will be an area of growing interest for HMRC from April 2022, when financial penalties may be issued. HMRC has already commenced a review of the Oil and Gas and Financial Services sectors prior to the ‘soft landing’ period ending. Therefore, now is the time for businesses to engage with their IR35 review process, to ensure compliance and avoid potential financial penalties.
To receive expert and tailored advice as to how this will affect your business, please contact Jan Cunningham, David Mitchell or Niamh McMonagle in our Employment Team