Managing IR35 issues

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I’m not sure any other UK tax law causes as much confusion or requires as much attention as IR35.

From the complex nature of determining a contract worker’s IR35 status to ambiguity over which party is responsible for non-compliance, this unpopular tax rule is easily misinterpreted and misapplied – a mistake that can cost dozens of dollars. million pounds, if staggering tax bills issued to government departments over the past few years are fully compliant.

Such is the confusing nature of IR35, here at Qdos we answer a host of questions daily about this notoriously controversial tax legislation, which was introduced in 2000 before being reformed in recent years.

The reform, first applied in the public sector in 2017, before being reflected in the private sector in 2021, saw the responsibility for assessing IR35 status move from the contractor to the end customer. The responsibility – in other words the financial risk – has also been transferred from the contractor to the paying part of the supply chain.

Moreover, since the deployment of the IR35 reform, it is not just entrepreneurs who have questions they want to answer. With recruitment agencies and end customers also at risk, the need for clear, concise and reliable advice in this area is indisputable.

With all of this in mind, I will now demystify and explain in simple terms some of the major talking points and myths surrounding the IR35.

Contractors are no longer responsible for IR35.

Following the IR35 reform, the responsibility no longer rests with the entrepreneur in all but one case.

The IR35 reform applies to public sector bodies and medium and large companies, but not to small companies. As a result, contractors engaged by businesses which HMRC classifies as ‘small’ remain responsible for determining their IR35 status and liable for any errors.

Second, HMRC reserves the right to retrospectively investigate contractors, which means that contractors are still technically at risk. The tax office continues to focus on contracts that were completed before the introduction of the IR35 reform, at a time when contractors held responsibility. HMRC can review contracts up to six years old – potentially older if willful non-compliance is suspected.

What does that mean? Well, put simply, the threat of an IR35 investigation still hangs over contractors regardless of IR35 reform.

Only end customers are now liable for IR35

In certain circumstances, the responsibility rests with the end customers. However, this only applies to medium and large companies (and public sector bodies) where the company is the paying party.

Assuming that all legal obligations have been met throughout the supply chain, the paying party – usually the recruitment agency that places the contractor – is the responsible party and will bring the complaint in the event of non-compliance .

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