No fines for accidental IR35 errors for the first year

3rd Mar 2021
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I wrote last month about how some medium and large businesses had put a blanket ban on Personal Service Companies and contractors in order to avoid having to engage with the new IR35 laws, and how this would inevitably harm them in the long run. Well, as my partner is never short of hearing - I was right, because HMRC released guidance recently confirming that they would be lenient with employers for the first year of the new IR35 rules.

Under the new rules, set to come into effect in April of this year, employers will be responsible for determining the tax status of their independent contractors and treating them as if they were actual employees so that they make the correct income tax and National Insurance contributions.

But this proved to be too big of an ask for many companies who said “no thanks” to a bit of graft and instead placed a blanket ban on contractors. Well MORE FOOL THEM I say because they are now at the very back of the queue for all the amazing and talented contactors out there. The most off-putting thing for businesses was obviously getting things wrong and facing fines or even litigation as a result so this news from HMRC is as welcome as a dog to an introvert at a house party.

The leniency extends to all businesses who make genuine mistakes, including in cases where the wrong tax determination is made, which was the main concern for employers. This “light touch” approach was promised by Chancellor Rishi Sunak last year which proves that a Tory can, in fact, keep a promise - who would have thought?!

An HMRC spokesperson said that this guidance demonstrated its willingness to support businesses to comply with the new rules and “builds on our existing commitments to a supportive approach to help organisations comply with the new rules, and the comprehensive education and support of HMRC is offering to help all those affected prepare”. 

However, despite this promise of a “light touch'' it is important to note that this is not a free pass to skimp on your IR35 preparations and hope for the best. Leniency will only be granted to genuine mistakes and not to those who are just looking to cut corners. Non-compliance will be met with little sympathy and HMRC will 100% be looking to recover any unpaid tax or NI contributions. Businesses also needed to be aware of compliance risk throughout their supply chain, and be able to demonstrate to HMRC that any errors made are genuinely accidental.

In any case, the news is positive, especially for the poor and suffering self-employed who will at least have a better chance of engaging and working with companies without any IR35 related doom or gloom hanging over their heads. 

Want to find out how you can keep off-payroll workers to a minimum? BrightPay is hosting a free IR35 webinar with industry expert Jas Jhooty, Director at emTax. Register now to discover how you can obtain ‘outside IR35’ SDS rulings for as many contractors as possible to keep 'inside IR35’ contractors to a minimum and reduce costs from April 2021. Places are limited - book your place here. 

Aoibheann Byrne


Written by Aoibheann Byrne

BrightPay Payroll Software


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