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Off-Payroll Working Rules in the Private Sector: One Year On

Updated: Aug 5, 2022

The changes, which mirrored those introduced in the public sector in 2017, shifted the responsibility for determining a contractor’s status to the business engaging them. As a result of the reform, the IR35 liability was transferred to the end-client, with the hope that end-clients will take a more compliant approach to IR35 assessments.

The end-client is required to assess whether the contractor is employed or self-employed and must take reasonable care in making that assessment. The end-client must confirm its assessment with reasons in a Status Determination Statement (SDS). When determining a status, the contractor must be able to demonstrate autonomy in the way that the services are undertaken, and the right of control is broken down into 4 subtests – how, what, where and when. The end-client should have no influence over the manner that a contractor performs their services. If your contract is inside IR35, the end-client will pay Income Tax and NICs (employers and employees) to HMRC.

Since September 2021, private sector companies have started receiving letters from HMRC and there are now a number of open enquiries into firms across various sectors. The announcement of ‘soft landing’ unfortunately attracted companies into a false sense of security, at a time when they should have been preparing for a very significant legislative change. We have also seen an increase of HMRC activity since the rules were changed, both in relation to the reform rules in the public and private sector, but also historic investigations into contractors prior to the amendments taken affect.

On 6th April 2022, the HMRC ‘soft landing’ period for IR35 came to an end. This means that businesses will be penalised for non-compliance and will have no choice but to assess the IR35 status of their workforce. HMRC penalties for misapplying the off-payroll working rules in the private sector will fall into line with the department’s standard approach to tax compliance.

The penalties will be a percentage of the tax and National Insurance contributions that HMRC would have lost if they hadn’t carried out their enquiry. The percentage is decided by looking at the businesses behaviour - including whether or not inaccuracies in information supplied to HMRC were deliberate or not.

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