A recent report showing that the Post Office is seeking a subsidy of more than £104 million from the Department of Business & Trade to cover an IR35 settlement with HMRC is a stark reminder that non-compliance of IR35 can be costly and time consuming.
What is the issue?
Since April 6, 2017, public sector bodies have been responsible for determining the IR35 status of contractors. This involves determining whether, were it not for an intermediary being in the supply chain, the contractor would have the characteristics of an employee. This was extended to the private sector in April 2021 where medium and large sized businesses fall within the rules. If a contractor’s role is deemed ‘inside IR35’, PAYE and National Insurance must be deducted at source via PAYE.
We know from the Post Office’s annual report that the underpayment was identified in a review by HMRC and the report describes it as a prompted disclosure, meaning that it was disclosed at a point where it was likely that HMRC would have identified it.
The Post Office is not alone in the public sector. The Annual Reports for several large government departments show significant settlements on IR35 matters.
What do employers need to consider?
Employers will need to consider the following:
- The public sector had a four-year head start on IR35 and we are now seeing some significant settlements underway. HMRC will clearly see that this is a very lucrative area for them;
- Employers falling within the rules shouldn’t be complacent. Checks should be ongoing rather than one-offs, as circumstances can and do change;
- The whole people supply chain remains under scrutiny from HMRC, with imminent changes including introducing a jointly and severally liable clause for businesses and agencies using umbrella companies;
- Due diligence to ensure that the supply chain correctly operates PAYE and NIC on all payments has never been so important.
How can UNW Help?
UNW has been helping employers plan for the changes using the following methodology:
- Identification of all off-payroll workers and how they are currently engaged;
- Determination of each worker’s employment status;
- Identification of those most likely to be deemed employees and the reasons for that assessment;
- Advising on communications to workers affected by the rules; and
- Helping to set up processes for employers to comply with the rules.
If you would like to discuss how we can help you, or have any other employment taxes related queries, please get in touch with us at employmenttaxesteam@unw.co.uk
