What’s next for IR35 in 2023? | BDO UK NFP

As we head into the last few weeks of the 2022/23 tax year, it is worth considering that 5 April 2023 marks two years of the IR35 Private Sector Reforms taking effect.????????

Despite a brief period of uncertainty in the September Mini-Budget when Kwasi Kwarteng proposed a repeal of the IR35 reforms, the current Chancellor (Jeremy Hunt) confirmed the Government was keeping with the IR35 reforms, so normal service has resumed and the 2021 Private Sector (and the 2017 (Public Sector) IR35 reforms are again approved government policy.

The key message for any organisation who utilises off-payroll workers is that their compliance responsibilities remain and that HMRC expects all organisations to proactively manage their obligations under these rules.

As an overview, we have set out below where you should focus your attention:

• Be prepared - for HMRC IR35 reviews from April 2021 (2017 for Public Sector) onwards. You will require robust policies and procedures, supporting evidence of all steps taken as well as demonstrating that reasonable care has been taken read about demonstrating reasonable care.
• Protect your organisation – given current economic circumstances you may want to use more contractors, but if you do not have robust procedures in place to identify and assess any workers using Personal Service Companies (PSCs) and these policies are reviewed regularly, you will be at risk.
• Directors and Non-Executive Directors – make sure they are treated as deemed employees where necessary.
• Self-employed contractors - you still have a risk if you engage individuals directly on a self-employed basis: check their employment status to make sure HMRC would not regard them as de facto employees.

Other contract workers - put robust PAYE/NIC due diligence processes in place for all your outsourced workforce, i.e. where your labour supply chain includes services provided by Umbrella Companies, temporary labour employment agencies and other third parties. Make sure you review the contractual obligations each time where procuring contractors from a third-party supplier. Don’t assume that HMRC won’t pursue you if suppliers fail to operate PAYE/NIC when they should.

In our experience, in around a third of the cases we have been asked to review for “Off-payroll purposes”, the worker is engaged directly – often this is because the contract should have been with the PSC but was incorrectly drafted and the counter party is the individual worker. In these cases, the responsibility for operating PAYE remains with the engager and will do so going forward.

The off-payroll reforms were introduced to tackle widespread non-compliance with the original IR35 rules. Alongside them came the introduction of the Criminal Finances Act 2017 which created a corporate criminal offence for ‘failing to prevent the facilitation of tax evasion by an employee or associate’ (which includes contractors).

In addition to the employment tax obligations of engaging off-payroll workers, having ‘reasonable prevention procedures’ in place is a defence against the potential criminal sanctions of an unlimited fine and a public record of the conviction. HMRC are focussing in this area, so check your policies and processes; do they demonstrate that you have taken reasonable care to ensure that your contractors and any outsourced labour suppliers are themselves complying with the rules?

BDO have an experienced team of specialist who can assist your organisation in meeting the compliance obligations of the use of Off-Payroll Workers, so if you need any assistance please speak with you usual BDO contact or get in touch with Jacqui Roberts or myself.?