A recent survey conducted by BDO found that 55% of SMEs say they will worry about off-payroll reforms when businesses return to a more normal footing post-COVID. As a reminder, new legislation came into effect in April 2021 which now means that businesses engaging contract workers through a personal service company (e.g. Joe Bloggs Limited) are now responsible for determining the IR35 status, whereas previously this was the responsibility of the worker themselves.
The legislation was originally planned to be effective from April 2020 but was delayed due to the pandemic, and HMRC has subsequently announced a ‘soft landing’ in relation to this year’s changes. This supposedly means HMRC will take a lenient approach to penalties for the first year of implementing the off-payroll changes.
It is possible that SMEs’ complacency towards implementing the changes is due to the so-called soft landing, however there is an important caveat to HMRC’s position “unless there’s evidence of deliberate non-compliance”. Businesses choosing to ignore the off-payroll changes would almost certainly be considered in deliberate non-compliance with the new legislation, and therefore extremely unlikely to experience any leniency from HMRC.
Recent cases within the public sector affecting DWP, the Home Office and HM Courts show that compliance with the previous off-payroll legislation (brought into the public sector in 2017) is actively being enforced. In addition, from this autumn, a new HMRC taskforce is set to emerge to clampdown on unpaid tax.
John Chaplin, employment tax partner at BDO, said: ‘Businesses who do not comply will still need to pay tax and could face significant penalties. HMRC has shown that it will not turn a blind eye to non-compliance, so businesses who do not have a formal IR35 process in place should immediately rethink their affairs. Unless a business can show that it has taken ‘reasonable care’ over its IR35 responsibilities, penalties can rack up pretty quickly.”