HMRC Issues with IR35 Implementation

In April 2021, new IR35 regulations were put in place for “off-payroll” workers - contractors or self-employed workers employed by medium and large private sector companies - to ensure they pay similar tax and national insurance payments as regular full-time employees doing the same work. These rules were already in place for the public sector, but after several Covid-related delays the new rules for private sector companies went into effect in April 2021. So what is the problem?

Recently, HMRC met with the Public Accounts Committee and noted that many companies are failing to implement IR35 rules correctly, causing more than £260 million to be owed or due to be paid to HMRC. There is an issue of employers not understanding the rules and not being able to administer the rules correctly despite months of training.

Another complicated factor in the IR35 implementation is that contractors serving one company, would typically fall into the “off-payroll” rules, but are hiring others to help with the work. This is called “substituting” which makes it difficult for companies to treat the contractor as an “off-payroll” worker because there is more than one person working on the job. This also leads to companies selecting contractors who use substitutions, because they can avoid paying tax and national insurance due to this loophole.

As HMRC struggles to collect money owed based on the new IR35 rules, British taxpayers could suffer. As companies continue to mishandle IR35 calculations and payments, HMRC is losing over £400 million per year in tax revenue. Large organisations are finding it difficult to understand who qualifies as an “off-payroll” worker and then manage the tax and insurance consequences.

If you have contractors who are considered “off-payroll”, we can help with compliance-related questions. Our cloud-based payroll software with customised reporting and direct filing with HMRC helps your team stay ahead of IR35 requirements and payroll deadlines so you ensure compliance. Talk to our team today and simplify your employee payroll – click here to get started