IR35 Bringing the Hammer Down

It’s been 4 months since the latest IR35 rule changes were introduced in the private sector; changes which saw the transfer of responsibility to determine worker status from contractors to large and medium-sized companies.

The changes were criticised by many and flagged as the death knell for independent contractors here in the UK and the end of the flexible labour market. With the ongoing impact of the pandemic, which caused a 12 delay in the introduction it is still difficult to truly gauge the real impact of the legislation. There are lots of anecdotal stories both positive and negative in terms of the impact on individuals and companies and some are even blaming the current shortage of lorry drivers on the changes!

Will HMRC Police the changes?

As with all change, there are those who embrace it, those who work out what they can get away with doing as a minimum, and of course those who carry on regardless. The backstop always being will the changes be policed and if so what are the implications if we get caught out.

We knew that the changes would take some getting used to (even though many organisations implemented early due to the delayed start date) as many companies were holding out even months before the deadline hoping that they would be cancelled altogether.

As a result, HMRC announced that accidental breaches would not be punished during the first year of implementation. Instead of punishing those who are found in breach will be given guidance so they can stay within the guidelines going forward:

“Contractors will not have to pay penalties for errors relating to off-payroll in the first year, except in cases of deliberate non-compliance,” putting in writing promises made by Rishi Sunak, chancellor of the exchequer, that the government would not be “heavy-handed”.

Public Sector Examples

If companies are wondering if HMRC will enforce the changes, recent news from the public sector suggests That they will. The rules regarding IR35 in the public sector, otherwise known as ‘off-payroll’ working in the public sector came into force on 6th April 2017 so they have had much longer to bed in.

However, we have started to see some big fines being issued by HMRC. The Home Office has been hit with a £33.5m charge for being “careless” in its implementation of the tax avoidance reforms. Whilst DWP have also received an £87.9m tax bill for incorrect IR35 status determinations.

It will be interesting to see if these big fines are being put out there as a warning to onlookers that HMRC is serious about bedding in these changes! After all the Government has had an expensive eighteen months and will be looking at every opportunity to refill the coffers.


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