It’s been reliably reported that HMRC have resumed IR35 enquiries that were put on hold because of the Covid-19 pandemic. In recent weeks, contractors who were being investigated pre-pandemic received letters from HMRC, asking if they were ready for the investigation to resume, and giving them chance to put forward any circumstances that would make this difficult.
Considering the economic impact of the pandemic, it’s unsurprising that the government is looking to raise tax revenue from perceived non-compliance. This is even more likely considering the recent estimate in the spending review that the one-year delay to IR35 reform has cost the government in the region of £740m.
Given that restrictions are still likely to be in place for some time, the government’s tentative approach to reopening inquiries is understandable. However, they have lost no time in indicating that IR35 is still firmly on their agenda, and this should act as a wakeup call for contractors who are still waiting to see what happens in April before acting.
HMRC has also starting to open new tax enquiries over the last few weeks, which it’s thought will turn into IR35 cases. With any new cases opened before April 2021, HMRC will be making their enquiries as the IR35 rules currently stand. This means that contractors will still be liable for unpaid tax and penalties if their contracts are deemed inside IR35 by HMRC.
However, after April 2021, HMRC has said it will focus on ensuring compliance with the new rules, rather than investigating past arrangements. If contractors have an ongoing compliance enquiry, HMRC will not ask for any information on decisions that clients may have already made or were in the process of making for the April 2021 changes. This includes decisions such as reclassifying a contract as inside IR35.
The only reason HMRC will open an enquiry using information acquired through the off-payroll changes, is if there is reason to suspect fraud or criminal behaviour. HMRC took a similar approach to contractors in the public sector when the rules changed in 2017, and has never opened a compliance enquiry using information acquired through the 2017 reform to investigate previous years.
The news of renewed IR35 activity has received mixed responses from contractor bodies. While its preferable for stressful investigations to be concluded as soon as possible, many contractors have been hit hard by the pandemic. In particular, the exclusion of limited company directors from the coronavirus support schemes has received widespread criticism. There’s growing belief that the exclusion of limited company directors from the SEISS scheme indicates the government’s negative stance on limited companies.
This content has been supplied by IR35 Guru
Contractors, businesses and agencies are now advised to use the remaining time until April 2021 to prepare for the changes ahead. Umbrella Exchange has a wide range of options to help you keep your contracting career on track. To talk to a member of our team, call: 0203 393 3881