Press release: HMRC clarifies when contractors at risk of retrospective enquiry

The ATT welcomes clarity from HMRC1 about off-payroll working and when a change in a worker’s reported status from April 2020 might trigger an enquiry into their tax affairs from earlier years.

From April 2020, the off-payroll rules that apply to contractors engaged in the public sector will be extended to the private sector. This will shift responsibility for determining whether an engagement falls within the off-payroll (IR35) rules from the worker’s personal service company (PSC) to the engager (the business which requires the worker’s services).

The off-payroll rules are complex to apply and many contractors are concerned that if their engager reaches a different conclusion from them – or simply makes a blanket decision that all its contractors are within the off-payroll rules to reduce their own tax risk - HMRC might use the change in reported status as a reason to enquire into the contractor’s tax affairs from previous years.

Jon Stride, Co-Chair of the ATT’s Technical Steering Group, said:

“The new policy paper states that HMRC will only use the information they receive following the changes to open an enquiry if they have reason to suspect fraud or criminal behaviour. This is a high bar to clear and is a welcome pragmatic approach by HMRC. It also builds on earlier statements that the reforms are not intended to be retrospective.2

“Tax enquiries can be exceedingly stressful for all concerned and, since the off-payroll rules require the balancing of a number of different factors, can take a long time to resolve. Without the assurance now contained in the policy paper, contractors were understandably concerned that recognition of a different status from April 2020 could give HMRC grounds for seeking additional tax for earlier years. The risk of any such retrospective enquiry is substantially reduced by HMRC’s clarification.”

Notes for editors

  1. HMRC’s policy paper was published on 22 October 2019.
  2. In a factsheet published in October 2018 HMRC had said under Addressing key concerns “The reform is not retrospective. As was the case in the public sector, HMRC will focus on ensuring businesses comply with the reform for new engagements, rather than focusing on historic cases. HMRC will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35 for the first time. Organisations’ decisions about whether workers are within the rules will not automatically trigger an enquiry into earlier years.” The wording in the new policy paper is more reassuring.
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