In what many will see as contradicting their published “soft landing”, HMRC have started off-payroll compliance activity in the Oil & Gas and Financial Services sectors this week.
HMRC are writing to businesses that they believe engage contractors requesting the business to contact HMRC by a certain date to arrange an initial phone call. This is the start of a compliance check, and the letter is the formal opening of the process so must not be ignored. A follow up meeting will be arranged at which HMRC will seek assurances that the off-payroll legislation is being implemented properly and with reasonable care.
What is being investigated?
According to the letter (which you can view here), HMRC would like to understand the following business processes:
- the hiring process for contractors working through their own limited company;
- the process of deciding the employment status of these workers;
- the process for deciding if any services you outsource are fully contracted out.
Following discussion with the business, HMRC may conclude that processes are suitable and no further action is necessary. If the initial compliance check brings to light any concerns, HMRC may work with business to strengthen their processes or correct errors.
Are businesses compliant?
We recently reported that over half of businesses are choosing to ignore their new off-payroll responsibilities until things have settled down post-pandemic, a foolhardy position given that HMRC will conclude deliberate non-compliance.
Many businesses have been relying on HMRC’s publicised “soft landing”, wrongly concluding that no penalties means no need to comply. This is not the case at all! HMRC have explained that they will not apply penalties in the first 12 months unless there is evidence of deliberate non-compliance. Ignoring the legislation will inevitably be seen as deliberate non-compliance!
Penalties and mistakes
Furthermore, no penalties being charged is not the same as not paying any monies owed. If mistakes are made the business will need to pay any tax, NICs or apprenticeship levy plus interest. The letter states that:
“If at any point you realise you have made a mistake in applying the rules, please let me know straightaway. I can work with you to put it right.”
HMRC’s letter confirms that businesses will not be charged a penalty if they “took reasonable care to apply the off-payroll working rules correctly but still made a mistake”
Whilst HMRC’s compliance activity is starting in the Oil & Gas and Financial Services sectors, you can be certain that it will follow across the board. The message is simple: all businesses in all sectors will need to be able to assure HMRC of their compliance. Any businesses relying on the “soft landing” will soon find out whether this was a sensible strategy or not. Our money is on the latter.