Government Will Largely Avoid Imposing Penalties For First Year Of New IR35 Arrangements

by Liz Seyi Digital marketing manager

In welcome news for many businesses using Wellington and Plymouth bookkeeper and payroll services, the government has issued new guidance indicating that it will not fine employers if they initially fail to comply with upcoming changes to IR35 rules – as long as there is no evidence of deliberate wrongdoing.

The off-payroll working rules, also known as IR35, have been in place for more than two decades. They are aimed at ensuring someone working effectively like an employee, but through their own limited company such as a personal service company (PSC), pays broadly the same Income Tax and National Insurance contributions (NICs) as other employees.

However, from the beginning of the new tax year on 6th April 2021, it will become the responsibility of an employer engaging a contractor to determine whether that individual is subject to IR35 rules.

Previously, assessing the contractor’s employment status in such circumstances had been the duty of the contractor’s PSC. It’s a change that means if a given contractor does come under the rules, the client organisation – or the agency or third party paying the contractor’s PSC – will be the entity responsible for accounting for employment taxes and NICs.

What did the new guidance specifically say?

The full document outlining what HM Revenue & Customs (HMRC) has described as a “supportive compliance approach to the changes to the off-payroll working rules” can be read on the GOV.UK website. It includes details on the government’s IR35 “compliance principles”, as well as on how it intends to help employers to fulfil their responsibilities under the rules.

Especially eye-catching is the government’s commitment to effectively waive penalties for any “inaccuracies” for the first 12 months the off-payroll changes are in force, “unless there’s evidence of deliberate non-compliance.”

HMRC has also pledged not to use information it acquires as a consequence of the IR35 changes to open new compliance enquiries into returns for tax years prior to 2021-2022, “unless there is reason to suspect fraud or criminal behaviour.”

The government added in the document that its first aim would be to support businesses trying to comply with the latest rules in good faith, and that it would not make specific determinations of employment status itself.

It did tell employers, however, that it would “provide support based on our view of the employment status indicators and give advice on best practice to help you fulfil your obligations.”

By contrast, “deliberate defaulters” will be named and shamed in order to encourage organisations “to get their tax affairs in order”, and the government will also challenge contractors that it regards to be engaged in artificial or contrived arrangements.

Are you on top of your own bookkeeping and payroll obligations?

While the upcoming changes to the IR35 rules will undoubtedly be near the top of many employers’ agendas in early 2021, there are many other accounting and legal challenges that may await your organisation in the months and years ahead.

To find out more about the difference that the Wellington or Plymouth bookkeeper and payroll services of Britebooks can make to your operations this spring and beyond, please get in touch with our team directly today.