Key points: -
HMRC outlines ways it will support businesses and when it will intervene;
Changes to the off-payroll working rules are set to come in on 6 April 2021;
Businesses should use the check employment status tax tool which determines a worker’s employment status for tax and NICs purposes.
HMRC has released a set of IR35 'compliance principles' to outline ways it will support businesses and when it will intervene.
IR35 is HMRC's attempt to determine whether a non-payroll worker is a contractor or essentially a disguised employee.
The off-payroll working rules have been in place since 2000, and are designed to ensure that an individual who works like an employee, but through their limited company, such as a personal service company ("PSC"), pays broadly the same income tax and national insurance contributions as other employees.
However, the changes to the off-payroll working rules, which are set to to come in on 6 April 2021, mean that the responsibility for determining whether the rules apply will shift from the individual's PSC to the client organisation engaging them.
HMRC first transferred this responsibility in 2017 to the public sector. This principle is to be extended to the private sector from April this year, and will apply to all medium and large-sized private and voluntary sector organisations and public sector organisations.
In February 2020, HMRC published a statement about its compliance principles to the changes coming in and stated it will take a "light touch" approach to penalties.
In the HMRC briefing issued this week, HMRC has said this commitment has not changed.
Customers will not have to pay penalties for inaccuracies in the first 12 months relating to the off-payroll working rules, regardless of when inaccuracies are identified, unless there is evidence of deliberate non-compliance.
HMRC said that businesses should use the check employment status for tax tool which helps determine a worker's employment status for tax and national insurance purposes. and the tax office will stand by the result produced by the tool, provided the information inputted is accurate.
"We know mistakes happen. A mistake for the purposes of the off-payroll working rules may mean that you have not met some or all of your responsibilities, or have paid more less tax and NIC's is due," the HMRC briefing said.
"Mistakes can include payments being made to contractors without the correct deductions being made or making inaccurate employment status determinations"
"We will not charge a penalty if you took reasonable care to apply the off-payroll working rules correctly but still made a mistake, including making mistakes in status determinations"