IR35 Rules Won’t Automatically be Applied Retrospectively

IR35 Rules Won’t Automatically be Applied Retrospectively

30 October 2019

With around six months to go until public sector IR35 reforms take effect in the private sector, HMRC has clarified how it will enforce the regulations.

The tax authority has announced that the new rules will only be applied retrospectively in cases where it suspects fraud or criminal activity.

Some contractors were concerned that if a private sector engager changed their contract to ‘inside IR35’ then HMRC might automatically launch an enquiry and try to recover tax due for the duration of the contract.

Under the off-payroll working changes, which take effect in April 2020, the responsibility for judging IR35 status will pass from the limited company contractor to the private sector end-user.

To protect themselves from any legal action, it seems likely that private sector organisations will set a high bar for ‘outside IR35’ judgements. This means that more contractors will be forced to pay income tax and National Insurance contributions as if they were employees.

In a briefing note released last week, HMRC said that it will only use information resulting from these changes to open a retrospective enquiry if there is reason to suspect fraud or criminal behaviour.

Miles Grady, Director of Umbrella.co.uk, said: “This is a welcome move from the tax authority. Without it, a private sector engager could have ruined a contractor simply by reaching a different conclusion about their employment status or by applying a blanket decision to all limited company contractors.

"HMRC’s decision points to an element of pragmatism, something that has been lacking in many of their off-payroll working announcements.

“When the new IR35 rules are introduced, many contractors may find that they are better off switching to a different arrangement. Alternative solutions like umbrella arrangements offer extra advantages like statutory holiday pay.”

For information and advice on IR35, speak to a member of the team today. Call: 01625 546610.