Off-Payroll (IR35): The challenges ahead


There is no longer scope for legislative change ahead of April 2021, and attention must be focused on practical solutions to Off-Payroll compliance.

For end-clients, attention must turn to mitigating the impact of Off-Payroll, for which compliance is key. The extra time afforded by the postponement means many businesses have waited until around September 2020 to establish compliance protocol.

For now, we still recommend, if possible, that firms issue shorter contracts until an Off-Payroll compliance plan is in place. Hirers are specifically advised not to agree contracts that overlap into April 2021 and beyond, unless it is essential. Doing so would require firms to plan for Off-Payroll earlier than otherwise would be necessary.

Insurance – beware of poor policies and wait until there is choice

Companies that heavily rely on insurance products as an alternative to robust compliance will be playing a dangerous game. Insurance is based around unforeseen, fortuitous events. Failing to pay the correct amount of tax does not meet this criterion, so the chances of compensation will be particularly slim for firms that have failed to protect themselves with rigid compliance processes.

In the event of an HMRC investigation, companies shouldn’t simply expect an underwriter to pick up the tab, particularly if they have limited evidence to support their original status determination. I’m aware of multiple insurance products that will be available in the near future. Fortunately, hiring firms have plenty of time to make considered decisions and do their homework, because the tax liability doesn't begin until April 2021.

Challenges for contractors and clients

Unfortunately, the build-up to the private sector reform and the prior ‘dress rehearsal’ have both shown that many hiring organisations are still reluctant to abide by their compliance requirements. Where clients are demonstrating little inclination to adapt to their new responsibilities, the onus may be on contractors to educate them about the importance and advantages of compliance.

Undertaking accurate status assessments and agreeing compliant ‘outside IR35’ contracts provides companies with a competitive edge in the contract market, while also negating risk and helping to minimise the cost of each engagement.

The task for contractors is to help their clients realise that ongoing due diligence is essential, not least because it will effectively combat the threat of an HMRC challenge that for many companies has incited a risk-averse approach. Where firms maintain plans to shirk their responsibilities, for example by refusing to engage workers off-payroll, contractors may well decide to vote with their feet.

Compliance advice

The biggest challenge for hiring firms will be securing trustworthy compliance advice. IR35 legal experts are relatively scarce, and few are likely to emerge soon when you consider the fact that HMRC takes 3-5 years to train its status inspectors. This itself would appear an insufficient timeframe given HMRC’s recent record in IR35 tax tribunals.

The UK’s pool of IR35 legal minds may be too small to adequately satisfy HMRC’s burdensome compliance demands, but IR35 Shield is on hand to instantly provide accurate status assessments, tailored guidance and the vital ongoing compliance process required for each contract.

An SDS alone won’t be enough

With HMRC status challenges typically preceding a tax investigation spanning back four or six years, long-term thinking is fundamental to a successful tax defence. IR35 Shield is focused on the long game, providing IR35 defence strategies that ensure ample protection for businesses unfortunate enough to be challenged by the taxman years down the line. This involves the collation of crucial evidence throughout the engagement, thereby reinforcing the original status decision and ensuring firms don’t turn up at tax tribunals empty handed.

Further enhancements built into IR35 Shield’s offering will be released prior to April 2021 which will likely fundamentally transform the way the market operates. These enhancements will supplement a solution that already provides answers for hirers, contractors, agencies, accountants and legal firms, encompassing the holistic approach to compliance that the Off-Payroll Tax necessitates.

IR35 Shield

IR35 Shield is the cloud-driven industry leading IR35 compliance standard for business and individual contractors.