IR35: taxman warns 43,000 firms over workers’ employment status

HM Revenue & Customs (HMRC) is issuing approximately 43,000 private sector businesses across the UK with letters warning them to consider the employment status of their contractors ahead of reforms to IR35 off-payroll working rules in April.

The taxman told New Model Adviser® it would be issuing letters to approximately 43,000 private sector businesses who engage with contractors before the planned reforms to IR35 in April, which will bring the legislation to the private sector.

In an example of what one of the letters from HMRC may look like, which you can view below, the taxman states that ‘whether a worker is employed or self-employed is not a matter of choice’ and that it is ‘important’ to get a person’s employment status ‘right’.

The letter says, ‘It is important that the employment status of every worker is fully considered and we’d like you to check that you are getting the employment status of all your subcontractors right.

‘Whether a worker is employed or self-employed is not a matter of choice. Instead, we need to take a rounded view of how the work is provided by a worker.’

If, on completing checks, an employer determines that one of their contractors should be an employee, they are required to calculate the appropriate PAYE tax and national insurance contributions due and report the details of pay and deductions for these new employees in their Full Payments Submission (FPS).

A spokesperson for HMRC said, ‘HMRC has put various measures in place to help businesses and other organisations get the status of the contractors they engage right.

‘We have dedicated teams providing education and support to all businesses, public bodies and charities affected. 

‘This includes one-to-one support for 2,000 of the UK’s biggest employers and direct communications to around 40,000 medium-sized businesses and is supported by workshops, guidance, online learning, round tables and an enhanced online tool that will help them make the right decisions.’

Direct communications

IR35 is tax legislation that is currently used to assess whether public sector contractors should be taxed as full-time employees. It was brought into the public sector in 2017, and will be applied to the private sector from April this year.

Since 2017, HMRC has cracked down on contractors who it feels are working as ‘disguised employees’, and has been issuing both companies and contractors with various letters regarding concerns of the employment status of some contractors. The letters usually give a timeframe for the employer or contractor to carry out checks or respond to HMRC.

Last week, New Model Adviser® revealed HMRCwrote to at least one TV presenter issuing determinations regarding their income tax and national insurance contributions under IR35 in 2019 despite having ‘no sufficient facts’. 

The TV presenter’s tax adviser said HMRC is taking a ‘guilty until proven innocent’ approach to contractors and employers, who are being placed under a lot of stress to provide evidence to prove they are not breaching IR35 rather than HMRC finding them guilty of doing so.

HMRC also issued approximately 1,500 GlaxoSmithKline (GSK) contractors with identical letters last year accusing them of wrongly operating outside of IR35 in the tax year 2018–2019, despite not having actually reviewed the cases, according to a Financial Times report.