IR35 one year penalties waiver ‘not unexpected’

As you may have seen in the press, last week the Revenue published new guidance on the new IR35 regime coming into effect in a few weeks time for the private sector. These are the rules that will shift responsibility for assessing which contractors are caught by IR35 on to the hirers, which has been the case in the public sector since 2017. The publication is the latest in a stream of regular updates we have seen over recent weeks as the 6 April deadline approaches. The Revenue says 'customers will not have to pay penalties for inaccuracies in the first 12 months relating to the off-payroll working rules, regardless of when the inaccuracies are identified, unless there’s evidence of deliberate non-compliance'. This has been picked up by People Management flagging how the Revenue's approach will one of leniency and light touch, and by Personnel Today with its the headline 'Government waives IR35 penalties for one year'. But when we look at the guidance, which came out last Monday, on its 12 month waiver of penalties it states clearly 'this commitment has not changed.' So if nothing has changed why the headlines? It's a question I put to tax specialist Penny Simmons: 

Penny Simmons: “I have to be honest, I don't really think it's news at all. All the Revenue has done that in the note that that was published the other day is state what they've already stated, that they would take a light touch to penalties for the first 12 months. It's just not news really. It's something we already knew, it's something that we've already reassured businesses that the Revenue will take that position, so really all the Revenue is doing is reaffirming, again, when we're in a position where we're six weeks from the start of these new rules, that if you're not quite there, or you're not quite sure what you're doing, for the first 12 months we're going to take a light touch to penalties. Nothing new there."

Joe Glavina: “But to be clear, companies that make mistakes still have to pay the tax due?"

Penny Simmons: “So the Revenue aren't saying that for the first 12 months any tax that's discovered to be owing won't need to be paid. They're certainly saying that if within the first 12 months it becomes apparent to them that a business hasn't applied the rules in the way that they need to apply the rules, then they certainly will expect tax to be paid. What they're saying is that if you make a genuine mistake, and they're not finding any evidence of fraud or wrongdoing, then they won't impose a penalty on you, but taxes will need to be paid. So it by no means represents any form of a delay to enforcement. The rules are coming in on 6 April, the rules will be enforced from 6 April, it's just that the Revenue are restating what they've already said, which is that they will take a light touch to issuing penalties, but that doesn't mean that taxes, employment taxes, National Insurance Contributions won't need to be paid if they should be paid under the IR35 rules.”

Joe Glavina: “So what's your message to clients Penny?”

Penny Simmons: “So ultimately, I'd say I'm using the same narrative that I've been using for the last couple of years when I've been talking to clients about how to prepare for the IR35 rules. You need to essentially review the processes that you have for onboarding consultants that are engaged through their own limited companies, either directly or through agencies, you need to be aware of when there is a consultant coming in through a limited company and you need to have processes in place so that you can make those status determinations. So work out would they be an employee for tax purposes if you had engaged with them directly and not through the limited company? Once you've done that the business is going to need to issue these status determination statements. If you like, there is no change as to where we were two years ago on that, or not two years ago but certainly a year ago before delay was announced, and businesses need to make sure that they've got the processes in place to manage the new IR35 risks that are going to be enforced from April.”

In recent weeks Penny and the tax team have covered a lot of issues to do with IR35 and the steps to be taken now in readiness for the new legislation coming in April. You can find all of that on the Outlaw website.