HMRC announces light touch approach to IR35 errors in first 12 months
Current IR35 rules state that private sector contractors, who work as if they are an employee, but who are paid through a limited company, are required to pay the same rates of Income Tax and National Insurance Contributions (NICs) as other employees.
Contractors are currently responsible for deciding if IR35 applies to their engagement with a private sector employer. But changes from 6 April 2021 mean this responsibility will move from contractors to employers, as will the liability for any underpaid tax and penalties.
The change has led to concerns from business owners on the risk of unintentional errors as they adapt to the new rules. Because of these concerns, HM Revenue & Customs (HMRC) has announced that businesses will not be penalised for errors relating to IR35 in the first 12 months.
The latest guidance states: “You will not have to pay penalties for inaccuracies relating to the off-payroll working rules in the first 12 months of the operation of the new rules, unless there’s evidence of deliberate non-compliance.”
It adds: “If you realise you have made a mistake in applying the off-payroll working rules, you should tell us about it at the earliest opportunity. We can work with you to put it right, whether that means paying unpaid tax or refunding overpaid tax.
“Where additional tax is payable as a result of a mistake, penalties may be due. However, if you tell us early and work with us to correct the mistake it can help mitigate any penalties.
“We will not charge a penalty if you took reasonable care to apply the off-payroll working rules correctly but still made a mistake, including making mistakes in status determinations.”
For help and advice with related matters, please get in touch with our expert payroll team today.