HMRC tipped to leave contractors alone under IR35 reform, but end-users told, ‘be prepared’

The taxman creating new online resources for off-payroll working in the private sector is a sure-fire sign IR35 reform is set for April, dashing restored hopes of a delay, says an adviser.

In fact, engagers who are delaying preparing for April 2021 in the belief that the reform will be shelved should read a new HMRC page created on Nov. 5th, hints Rebecca Seeley Harris.

“HMRC…updating the resources and support page for off-payroll working …[shouts] ‘BE PREPARED,’ the IR35 adviser says. “Delaying getting prepared…is a bad decision.”

'PSCs won't be subject to IR35 compliance checks'

But as well as the new page, ‘Resources and Support for Off-Payroll Working,’ a new approach to how HMRC will enforce IR35 from April has also emerged.

“HMRC will shift focus away from undertaking individual IR35 assessments once the new ‘Chapter 10’ IR35 rules come into play,” says Brookson Legal’s Matt Fryer.

“In a recent webinar HMRC confirmed…[saying], ‘HMRC wants to reassure workers that their intermediary entity will not be subject to new compliance checks using information from the off payroll working reforms, for tax years prior to 6 April 2021, unless HMRC has reason to suspect fraud or other criminal behaviour.’”

'Taxman not following up individual IR35 cases'

The compliance focus shifting away from contractors has started already, at least in cases where Mr Fryer’s Brookson has defended PSCs recently probed under  the ‘old’ IR35 (of 2000).

“HMRC has not followed up on any of the responses we provided for impacted contractors, which detailed the IR35 assessment the PSC undertook and the reasons for the outcome.”

“[So] I see enforcement under the new rules being about HMRC focussing on the end-hirer’s response to the changes and assessing whether that meets the ‘reasonable care’ threshold.” 

'HMRC unlikely to keep enforcing at the contractor level'

He deduced: “I would be surprised if HMRC continues to enforce at contractor level post-April 2021, given their resource-challenge [of policing IR35 individually].”

The chartered tax adviser was speaking after almost two-thirds of contractors gave their end-user a ‘negative’ rating for the engager’s knowledge of the Intermediaries legislation.

But reflecting on the finding (from a Brookson survey in August of 900 PSCs), Mr Fryer suggested some end-user staff were more likely than others to assess contractors negatively.

'HR-procurement staff more commercially-minded'

“Typically”, he said. “risk averse sectors…[are] where perhaps the decision is being made by the in-house tax or legal function – who tend to be risk averse – rather than HR or procurement – who tend to be more commercial.”

Elsewhere in the survey, 55% of PSCs marked down their recruitment agency, saying that their agent had ‘not done enough to educate or advise them’ about the IR35 changes.

“It’s clear these changes remain contractors’ main concern,” said Qdos boss Seb Maley, in light of research by his firm finding two-thirds of PSCs deem IR35 reform as their main threat.

'Ramp up off-payroll prep now'

He reflected: “Contractors view off-payroll reform as a bigger threat to their business than Coronavirus and Brexit combined - which is saying something.

"From where I stand, this highlights how important it is that private sector businesses - whether recruitment agencies or end-clients - ramp up their IR35 preparations.”