IR35 news: HMRC begins IR35 compliance checks
The banking and finance, and oil and gas sectors are the first to be targeted
IR35 at a glance
IR35 is a piece of legislation designed to tackle tax avoidance from 'disguised employment' where self-employed contractors set up limited companies to pay themselves through dividends, which are not subject to National Insurance.
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It was first introduced in 1999 by then-chancellor Gordon Brown. However, as part of the November 2016 Autumn Statement, current chancellor Phillip Hammond said that public bodies using contractors would be responsible for IR35 enforcement from 6 April 2017.
It's thought that contractors could lose up to 25% of their money with IR35, according to ContractorCalculator, and as a result, almost 85% said they would consider leaving the public sector to work for private companies instead, according to a recent Qdos Contractor's survey.
The IR35 definitions are a little fuzzy, but if you work onsite with your client who also manages you and supplies your equipment, or if you lead a team of employees that work for the client, IR35 will most likely hit you.
This is particularly worrying for government and public bodies, as they rely heavily on IT contractors, and many of those resources would be put at risk with the IR35 rules.
Head to our What is IR35? page for a detailed breakdown of the legislation.
Latest news: HMRC begins IR35 compliance checks
HM Revenue and Customs (HMRC) has begun formal IR35 compliance checks with organisations in the financial services and oil and gas sectors.
“HMRC has delivered extensive education and support to help organisations correctly apply the off-payroll working rules," an HMRC spokesperson confirmed in a statement given to IT Pro.
“We have published our compliance approach which outlines how we will support customers to comply with the rules. In line with our approach, we are now writing to customers in the banking and finance, and oil and gas sectors, to start work with them to confirm they are applying the rules correctly.”
The checks, which will ensure businesses are applying the off-payroll working (OPW) rules correctly, are the first since IR35 first came into force on 6 April this year. HMRC's confirmation comes after the Institute of Chartered Accountants in England and Wales (ICAEW) last week reported that HMRC has been issuing letters to organisations operating in the oil and gas, banking and financial sectors to confirm either that they are correctly operating the OPW rules or PAYE, where applicable.
The letter asks to understand more about the organisation’s process for hiring contractors. The challenge for many larger organisations is that contractors invoice for their work and are handled by purchase ledger teams with the risk that status checking is overlooked by human resources and payroll teams.
It's unlikely that organisations will face penalties for non-compliance with the rules, however. A source with knowledge of the matter told IT Pro that unless there is evidence of deliberate non-compliance, companies won't face fines related to IR35 made during the first tax year.
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