What is the background?
The new off payroll working legislation, also referred to as IR35, was introduced in the private sector for medium and large employers in April 2021. Due to the impact of the pandemic, the UK Government announced that the introduction of the rules would not be policed in a draconian way, and instead stated that HM Revenue and Customs (HMRC) would not issue any financial penalties to employers in its first year of operation.
What is the issue?
Although HMRC have largely kept their side of their soft landing bargain, (notwithstanding the multi million pound penalties for “careless” behaviour handed to various other government departments) they have been active in collecting any additional tax and NIC which has been payable due to non-compliance with the new rules. As this approach by HMRC will end from April 2022, employers will now be open to potential financial penalties of typically between 10-30% of the unpaid tax and NIC, as well as the unpaid tax and NIC itself for the previous tax year.
What do employers need to consider?
Employers now need to consider their workforce in full and understand the following:
- Who is working for them and how are they engaged;
- Whether any workers have working patterns characteristic of an employee; and
- Whether their processes are good enough to identify any disguised employees.
Even if the worker is not caught by IR35 (i.e. they are working through their own company), one sole trader worker who is re-categorised as an employee can result in a significant tax and NIC liability, especially as HMRC can in these situations extrapolate any potential liability back a further 6 years.
How can UNW help?
UNW’s specialists have been assisting employers in reviewing their off payroll workers by looking at the following:
- Reviewing workers terms and conditions and working patterns to understand the real basis under which they have been engaged (notwithstanding a compliant contract being in place);
- Helping employers to understand and determine the employment status of their off payroll workers; and
- Providing advice on the tax and NIC implications of the engagement of any off payroll workers;
- Identifying any issues with the engagement process, and suggesting ways to strengthen this to improve future compliance; and
- Proactively managing any employment status issues, including engaging with HMRC on any prompted or unprompted disclosures.
If you would like more information about this, or any other employment tax related matters please contact:
Lee Muter
Employment Taxes Partner
E: leemuter@unw.co.uk
T: 07810 852 362
Paul Tucker
Employment Taxes Senior Manager
E: paultucker@unw.co.uk
T: 07392 870 199
David Paul
Employment Taxes Senior Manager
E: davidpaul@unw.co.uk
