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May 15, 2023

IR35 & Off Payroll Working – How to make HMRC think twice about challenging?

IR35 & Off Payroll Working – How to make HMRC think twice about challenging?

Tax inspectors in addition to their main investigative role, also act as foot soldiers, gathering and sharing information with their colleagues in other departments of HMRC. So a VAT enquiry for example could result in a subsequent investigation into any or all other areas of taxation of your business – so the message is; be aware and be prepared!!!

Whatever arm of HMRC comes “through the door”, regardless of the size of the business, it will invariably be for a specific reason. Whilst they may say “their enquiry is merely routine” you need to be aware this is unlikely to be the case, so think cynically, as the investigation team has come forearmed, prepared and with an agenda. Inspections will have had internal research undertaken beforehand by a HMRC team called Risk & Intelligence Service, as such Inspectors come with preconceived ideas about where potential tax leakage “may” exist - whether this is ultimately proven or not.

You are no doubt aware, that Public Authorities have been required to comply with Off Payroll Working since 6th April 2017 and as a result have acted as practice a ground for HMRC inspectors. From their perspective they will use the knowledge gained when targeting what they consider the lucrative private sector.

The tax authorities are now preparing themselves to target the private sector where they believe businesses may not have adequately embraced the legislation. It is also their belief medium and large size organisations, like the public authority sector, will not be able to walk away when things go wrong to protect their reputation and additionally they also have the financial capability to settle.

What can you do?

First and foremost, it is critical to be aware and recognise that at the heart of the matter, is understanding the question of the IR35 process itself and what this means for businesses caught up in the Off Payroll Working rules if they are to be in a position to defend itself when challenged.

Deemed employment status under IR35 follows the principles established under long standing employment tax case law. The criteria in question can be best summarised under what our previous article referred to as the “3 planks” rule and that is;

  • Personal service.
  • Right of sufficient control.
  • Any other factors consistent with employment.

Armed with this knowledge you can plan and prepare – if you get this right, the benefits for the business are likely to be immediate when dealing with HMRC. Our experience has shown getting the planning and preparation process right is likely to put doubt in the inspector’s mind, it makes them question the validity or strength of their case and whether the “perceived” tax leakage actually exists – it can put them on the back foot. Preparation and planning is about taking back control of the enquiry, with you taking the lead and not Inspector.

Thinking specifically about IR35 and Off Payroll Working, it cannot be understated how imperative it is that you have robust systems and procedures in place. Doing so will provide the strong foundations needed and our IR35 App coupled with our dedicated teams of specialists are on hand and available to help. It will enable your business to demonstrate a clear audit trail of the decisions you have made in the IR35 process and as such is likely to impact HMRC’s mind-set, making them step back, think twice before challenging your business believing easier pickings can be found elsewhere.

As a medium and large size business or public authority, when HMRC come calling they will almost certainly want to meet with the decision makers, particularly in Finance, HR and at a Director level. When it comes to IR35 and Off Payroll Working they will additionally endeavour to get access to the individuals within the organisation who has been responsible for the engagement of the freelance worker tasked with undertaking the project. The tax authorities consider these individuals will be best placed to discuss and comment upon the agreed working relationship between the parties. Remember no legal requirement for anybody within the business to sit down face to face with the inspector(s), the only obligation is to make records available and furnish information.

Therefore, when dealing with HMRC generally, but particularly with regard to employment status which is both complex and contentious, we strongly advise and recommend you consider carefully how you approach this. Using specialists such as Inspired Employer Solutions Ltd (“IESL”) will certainly pay dividends and avoid any miscommunication.

You and your personnel

As the end client (the decision maker) we believe that is vital that you and your personnel have an appreciation and understanding of the relevant “employment status factors” which determine whether the relationship is one of either employment or self-employment. This is critical as any decisions need not only to be communicated internally, but also to agencies and other 3rd party intermediaries if they are involved. This is also an aspect which HMRC will investigate, to ensure the Off Payroll Working decision has been communicated and acted upon.

You also need to understand and be clear on the benefits of the type of robust systems and procedures required to be in place so that the outcomes you produce will deliver a clear and unambiguous audit trail necessary to make HMRC think twice and deter them from challenging your business on this issue. Therefore, you need to ensure this is additionally included as part of your robust system and audit trail.

It is important to recognise that a little knowledge can also be dangerous. Businesses acquiring an “off the shelf” or a standard type contract which although saying all the right things bears little or no resemblance to the actual working relationship will not help and is more likely to hinder.

What help is available?

Inspired Employer Solutions Ltd (IESL) have developed IR35 App (www.ir35app.co.uk). This is a first to market solution which cannot be found elsewhere and is specifically adapted to your business. This unique and unrivalled paperless software application which delivers a bespoke and innovative approach to IR35 and Off Payroll Working. Implementing the necessary defence mechanisms that will educate and protect your business and make HMRC think twice before challenging.

IR35 App is backed by IESL’s team of dedicated specialists. The Directors Geoff Heron and Adrian Williams are former investigators with HMRC and Senior Managers with a Big 4 accountancy practice have the expertise and knowledge to help. IESL’s Directors are also joined by Steve Gretton; a former Employment Status Inspector who spearheaded IR35 investigations within HMRC. We believe no other “Big 4” or accountancy practice in the UK can boast such and array of hands on expertise.

How do you get IR35 App?

IR35 App is not available as an “off the shelf” product; why? - because the Directors understand that the decision makers within businesses caught up in the Off Payroll Working Rules and interested in investing in this unique product will want to understand its benefits and value prior to purchase.

The Directors Adrian and Geoff believe the best way to move this forward is to hold a face to face meeting, where we can;

  • Demonstrate the IR35 App.
  • Discuss the “extras” that come with IR35 App.
  • Discuss IR35 Apps IT support.
  • Confirm Pricing.
  • Answer any questions.

For more information, to include the timeframe for implementation, please contact Adrian or Geoff by following the IR35 App link at www.ir35app.co.uk.