The grace period offered to British medium to large businesses who engage limited company contracts draws to a close on April 6th. This means that contractors could be facing significant change to the approach taken by end clients to date when it comes to deciding if a contract falls within or outside IR35. During the year-long ‘soft landing’ period, HMRC agreed they would not issue financial penalties due to non-compliance. This is an acknowledgement of the complexity of implementing the new rules as the UK was emerging from the Coronavirus pandemic.
The new rules meant the responsibility for determining whether a contractor operating through their own limited company should be deemed an employee for tax purposes, is now up to the end client. This means the end client is now liable for the PAYE and NICs which are to be paid to HMRC, under the contract for those services.
In addition to implementing the new rules, businesses are now aware that there is also a potential trap in terms of historic liabilities as the year-long soft landing only applied to penalties. So whilst businesses may have been a little more relaxed in making the call on the IR35 status of the contract, contractors could see a hardening of decisions come the 6th April.
So are businesses ready for this change?
Seeking compliance was definitely a struggle for some businesses as a survey by Grant Thornton released in November 21 found that 19% of 605 mid-sized businesses were not confident in their IR35 compliance. A further 38% of businesses were found to not be fully prepared for the IR35 changes.
Stepping up their efforts to ensure compliance, HMRC focused on Oil and Gas and Financial Services in the latter part of 2021, identifying these industries as heavy users of the contracting workforce.
Available Compliance Tools
There are various tools available to help assess the IR35 status of contracts. HMRC has a free Check Employment Status for Tax (CEST) tool for assessing employment status for IR35 purposes. This isn’t the only status tool available to businesses, with the larger Accountancy companies making their software available to purchase.
Contractors with limited companies need to be aware that HMRC employs a number of tactics in their investigations of non-compliance. They also retain the right to investigate retrospectively as far back as 20 years, where applicable. As a contractor, the first line of defence will be to understand the level of risk your company is open to. Once such insight is gained, then engage the necessary professional support and always keep robust records of every contract your company is engaged on.
This content has been supplied by IR35 Guru
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