HMRC refreshes IR35 guidance for employers

HMRC has published three guides clarifying the tax status of contractors in a labour supply chain, employer responsibilities and non-compliance risks under intermediaries rules

Sara White, Editor, Accountancy Daily

The compliance guidelines are targeted at organisations operating under the reformed off-payroll working rules (IR35) and with umbrella companies.

The guides set out what HMRC considers good and bad practice when preparing for and making status determinations for off-payroll workers.

There is information on how to prepare for and make status determinations for off-payroll workers, tips on working with others in the supply chain, and how to ensure all workers that provide their services through an intermediary are correctly identified and considered under the off-payroll working rules.

In addition, HMRC stressed that when an organisation is implementing the off-payroll working rules for the first time, they need to review all existing workers. This is to identify any workers already hired who fall within scope of the rules.

This is also important when organisations take on new agencies or contracts which involve any element of labour supply, such as managed services. It is also important to consider the rules for any worker that provides their services through their own intermediary, such as a personal service company.

It also explains issues to look out for when working with others in the supply chain to gain assurance that income tax and National Insurance contributions are being deducted by the correct operation of PAYE, when off-payroll workers are deemed to be employed.

Working with the Treasury and the Department for Business and Trade, HMRC has also published new guidance for employment businesses who work with umbrella companies. This guidance will help them to understand their legal responsibilities, support umbrella company workers in their supply chains and protect their business by reducing their risk of non-compliance.

HMRC stressed: ‘There can be serious consequences for your business if you are involved in non-compliant supply chains and do not take reasonable measures to avoid this. A non-compliant supply chain might include umbrella companies who do not follow employment and tax law.

‘In most circumstances, claiming that you were not aware of non-compliance is not a defence.’

If HMRC investigates and finds a company is involved in non-compliant supply chains, it may take action. This includes but is not limited to prosecution for failure to prevent facilitation of tax evasion in the supply chain and issuing an enablers penalty for use of an umbrella company that is operating tax avoidance.

The updated guidance for umbrella company workers working through an umbrella company now includes checks that workers can do to identify and avoid fraudulent umbrella companies.