Let’s explore a few things that are on our IR35 radar for this year, delving into the increased resources at HMRC and considering the potential impact of a change in government on IR35 enforcement.

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There’s a noticeable uptick in off-payroll compliance checks. HMRC has assembled a dedicated team of 45 staff to handle these checks, signalling a significant increase in the tax office’s capacity. The checks are actively ongoing, and we anticipate this trend to persist, if not intensify, in 2024. The collaboration and information-sharing across HMRC teams suggest this approach will continue.

Are you taking reasonable care?

When it comes to off-payroll compliance checks, penalties may be imposed if there’s a lack of reasonable care. Organizations must maintain accurate records and demonstrate reasonable care to avoid additional charges. Recent guidelines (GfC4) from HMRC stress the importance of demonstrating reasonable care through training, record-keeping, and robust processes. Relying solely on CEST is deemed insufficient; businesses need suitably trained personnel for status assessments.

Extending beyond off-payroll workers

IR35 compliance checks extend beyond off-payroll workers, delving into the supply chain and outsourced services. The end client bears responsibility if they’re found not to be receiving a genuine outsourced service, according to the Guidelines for Compliance.

Despite potential changes in government following the upcoming elections, there’s an expectation that IR35 reform will not be repealed. Businesses, now three years into the off-payroll rules for the private sector, are adapting and finding ways to compliantly engage contractors outside IR35. The recent end to double taxation, effective April 6, reduces the perceived financial risk of incorrect IR35 status determinations, potentially encouraging businesses to reconsider contractor bans.

The outcome of the Professional Game Match Officials Limited (PGMOL) v HMRC case, expected soon, may impact how IR35 is determined. The case focuses on Control and Mutuality of Obligations, excluded from HMRC’s CEST tool, and its ruling is likely to influence changes to the tool and HMRC guidance.

Despite annual promises of improvements, HMRC’s CEST tool remains fundamentally flawed. Its recent update onto new software internally designed by HMRC hasn’t clarified its effectiveness. Many businesses, despite acknowledging its shortcomings, continue to use CEST for status determinations.

IR35 Investigations

Three high-profile IR35 cases involving Adrian Chiles, Gary Lineker, and Stuart Barnes will be heard in early 2024. HMRC’s strategy in targeting such individuals for compliance enforcement has been apparent, but the tax authority’s imperfect record in interpreting IR35 legislation in these cases raises questions. Regardless of the outcomes, these cases serve as a reminder of the prolonged and costly nature of IR35 cases.

For further IR35 guidance and support, please reach out to the Roots team. We’re here to help.

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