HMRC’s 'fear-inducing' IR35 enforcement paper belies 'light touch' vow

IR35 advisers are split between ‘better late than never’ and ‘too little too late,’ in their reception of a new, tough-sounding HMRC off-payroll paper on April 6th enforcement.

Published yesterday, the paper was first cued up in an ‘Employer Bulletin’ last week, in which the Revenue recommitted to the ‘soft-landing’ vowed early last year by the chancellor.

“We will take a supportive approach and help customers who are trying to do the right thing,” HMRC said in the bulletin, ‘Prepare for tax changes if you engage or supply contractors.’

“We are also committed that customers will not have to pay penalties for inaccuracies relating to the off-payroll working rules in the first 12 months unless there is evidence of deliberate non-compliance. This intent has not changed.”


Contractors may be reassured by HMRC restating its aim to uphold Rishi Sunak’s non-“heavy-handed” pledge, given that delaying a new IR35 made some fear it no longer applied.

Yet last night, a top status adviser suggested that not only is the bulletin inadequate for coming so late, but also that it belies the tough enforcement approach in yesterday’s paper.

“This is simply not good enough with such little time left,” the adviser, Kate Cottrell said on Thursday of the bulletin, insisting that firms needed to know “now” the “likely risks”.

“The paper is [different]. It’s clearly designed to scare but is disguised to appear as support. It’s a very scary read for anyone not yet aware or not doing anything about the new rules.”

'This paper sends three messages to the contractor sector'

The co-founder of Bauer & Cotrell also said the contractor sector should take three messages from the HMRC paper, ‘Supporting organisations to comply with the off-payroll rules.’

First, irrelevant of where in a PSC supply chain, any entity can be reported to HMRC “by anyone” for “suspected” IR35 non-compliance “whether by accident or design,” Cottrell says.

Second, HMRC using its paper to reveal a “specialist team” to enforce the rules indicates at least phone calls to entities, as “specialist teams need workloads,” the ex-inspector adds.

Third, to receive the off-payroll team, entities need to have their own IR35 team, or at least a designated person to talk, present documents/processes, and demonstrate ‘reasonable care’ to HMRC.

'Late in the day, amid a worrying number falling short'

Seeming to confirm that ‘reasonable care’ will be an HMRC enforcement priority, the term is used eight times in the paper, including in new case studies (see Company B; C; E and F).

Welcoming of HMRC spelling out how it will enforce IR35 reform, even if it does “feel a little late in the day” for such detail -- he says, is Matt Fryer, head of legal at Brookson Legal.

“There is a worrying number [of companies] yet to do anything [to prepare for IR35 changing], but also an equally large number of businesses who think they have prepared adequately -- yet are likely to have fallen short of their requirements under the new rules. 

“This will need to be unpicked and the position improved over time,” he adds. “[So] the more insight we can get from HMRC on how they intend to police and interpret the new rules, the better”.

'Light touch approach'

In the 10-page paper, HMRC says that, where the new rules apply, it will be the recruitment agency, the third-party who pays the contractor’s PSC or the end-client who will be legally responsible for “accounting for employment taxes and NICs.”

The department also outlines eight IR35 compliance principles, a few of which stem from its “light touch” for the first year (such as ‘helping customers correct a mistake’), but most of which suggest a much firmer touch (‘the specialist team will carry out all off-payroll compliance activity’).

Matt Collingwood, managing director at recruitment firm VIQU is hopeful the tougher wording will be just the wake-up call that some end-users are desperately in need of.

“Unlike last year, a lot of organisations are still not ready for April 6th – many haven’t even started, let alone sent out a policy,” he says.

“We’ve had a lot of contractors contacting us with their concerns. They haven’t been told anything by the company they’re currently working at.”

'Lots of businesses won't be ready on April 6th'

But perhaps if the HMRC paper “had been published last year instead, we would not be seeing so many people only just waking up to the new rules now,” says B&C’s Ms Cottrell.

Brookson’s Mr Fryer echoed yesterday: “There are still a worrying number of clients who have yet to take any action, or are taking action which is not sufficient.

“So I think ongoing education from HMRC will help. [But] I do not think April 6th will be an achievable date for lots of businesses to have their house in order and be compliant”.

'Further sign that an IR35 delay isn't going to happen'

However the subtext of the Revenue policy paper is clear – April 6th is launch day; there will be no further delay nor another 12-month postponement due to covid-19.

Accountant and former tax inspector Carolyn Walsh explains her assessment: “The information in this ‘new’ policy paper looks like the information that HMRC would have published just before April 2020.

“That is -- had the delay and [some Lords] not beaten them to it.

“It’s a further sign, if any was needed at this late stage, that a hoped-for delay to the rollout...[of private sector IR35 reform] is not going to happen.”


But the Andraste Accounting boss’s reading of the HMRC enforcement paper is too innocuous for an expert on employment status, who declined to be named.

“This document from HMRC is fear-inducing enough for many [end-clients] to simply say ‘right, that’s it -- no more PSCs,’” the expert said.

“This paper makes it obvious that simply not using limited company workers is the easiest route for organisations to take. But it will have absolutely dire consequences for obtaining the skills and the talent which organisations need to help them and the UK economy recover from covid.”

'Identify and step in'

An HMRC spokesman said of the enforcement paper: “Today’s publication explains how we will continue to support organisations to comply with the off-payroll working rules, once they take effect on April 6th 2021.

“It also shows what HMRC will do to identify and step in where organisations deliberately try to avoid paying what is due under rules.

“This builds on our existing commitments to a supportive approach to help organisations comply with the new rules, and the comprehensive education and support HMRC are offering to help all those affected prepare.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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