What Can We Learn from HMRC’s Off-Payroll Playbook?


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The last 12 months have been filled with companies in the private sector completing status determinations and trying to make sense of CEST whilst still trying to manage resourcing for large scale projects during a pandemic.

HMRC’s soft landing for off-payroll legislation for the private sector comes to an end today and introduces a new chapter for medium and large organisations.

So what does this mean going forward?

The soft landing period may have led some to believe that off-payroll legislation isn’t as bad as they first thought or that simply completing the status determinations (SDS) is all that is needed to justify an outside IR35 result or, that using an insurance backed determination is failsafe.

Interestingly, 4 years after introduction to the public sector, we are starting to see an HMRC enquiry playbook develop that confirms this couldn’t be further from the truth.

What we are witnessing is that HMRC are in no rush –  they have up to 4 years to investigate (6 years where evidence of systemic failure exists and 20 years where they believe deliberate falsification has taken place) so they are happy to play the waiting game and they know that, over time, organisations become complacent, change personnel and seriously underestimate the tenacity of their inspectorate.

They also know that organisations are so laser focused on completing their status determinations that they forget that it’s their actual ways of working that HMRC will analyse and expect to see supporting evidence throughout the lifecycle of the contract (not just on the day the SDS was completed).

We are therefore seeing HMRC enquiries triggering a plethora of  Voluntary Disclosures totalling more than £250m from fee payers and hirers (including the Cabinet Office).

These disclosures were not  because HMRC had proven individual engagements were incorrectly completed.  They were required because the fee payers and hirers were unable to demonstrate that they had embedded ways of working to support responses given nor did they have the evidence to show the engagements met the key tests.

As a result, it was HMRCs view that these systemic failings demonstrated that none of the SDSs could be correctly assessed as ‘outside IR35’ and so  tax and NI was now due for all these determinations.

The upshot of this is that there is no soft landing.  At some point HMRC will make an enquiry dating back to the ‘soft landing’ period and the fee payer and hirer will be expected to provide evidence that their ways of working both match the determination and can be fully evidenced – if you can’t evidence your ways of working (and, more importantly, don’t have the ability to extract & link this way of working to every engagement) then this will most likely be seen as a systemic failure and prove a very costly voluntary disclosure (and most likely not covered by insurance backed SDSs).

If your organisation hasn’t already done so, then the immediate priority has to be creating a standardised and documented workflow that creates a fully evidenced audit trail of transactions and can be easily monitored and extracted in the event of any enquiry by HMRC up to 4 years later.  This process is a cultural change and needs to be adopted by everyone and regularly audited to ensure constant compliance.  Once implemented it should provide the capability to confidently respond to any enquiry successfully.

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