Gradual or not, a step-up in HMRC’s enforcement of IR35 is tipped to be the tip of the iceberg.
An IT contractor recruitment agency has lifted the lid on HMRC carrying out IR35 off-payroll working investigations into five end-users.
VIQU, which mainly hires for the private sector, said the five have had HMRC scrutinise their IR35 “processes and determinations”.
All five came forward about their OPW “audit” in the last four weeks, says the agency, which places contractors in cloud computing, IT strategy, cyber security and development roles.
‘HMRC is intensifying its IR35 compliance checks’
VIQU’s Matt Collingwood shared anonymised details of the five organisations coming under off-payroll investigation by HMRC last Tuesday, on LinkedIn.
He says the fact that all five end-users told him in the last month, independently of each other, that they were probed under the OPW rules shows “HMRC is intensifying its [IR35] compliance checks”.
Speaking last night to ITContracting.com, status firm Bauer & Cottrell confirmed that there has been an “increase [in HMRC IR35 checks] in the last 12 months.”
‘No significant OPW investigation spike’
But B&C’s Charlie Hemsworth was keen not to scaremonger, emphasising there had been no “significant” spike in HMRC’s OPW scrutiny of late.
PSTAX, a tax advisory to the public sector, prefers that there has been a “step up” in HMRC’s enquiries into off-payroll working.
But similarly, it sounds like a gradual step up.
‘Off-payroll working investigations from 2022 are still ongoing in 2024’
PSTAX’s Angela Ferguson told ITContracting.com: “We’ve seen direct approaches [by HMRC on IR35] to local authorities.
“[But these] started in November 2022, and are still ongoing today [in late September 2024].”
The tax advisory’s head of employment taxes, Ferguson continued:
“[Similarly] in August 2023, virtually all police forces were sent a letter by HMRC’s Employment Status & Intermediaries team.
“ESI requested information…[on] forensic medical examiners and all other off-payroll workers. This, too, is still very much ongoing.”
‘Increase in HMRC activity’
Yesterday, Ryan Dawson, an IR35 manager at Kingsbridge, outlined an “increase in HMRC activity” on IR35.
He told ITContracting.com: “HMRC started with ‘large’ end-users covered by the off-payroll working rules — those with a turnover of £200million-plus.
“More recently…these [OPW] checks have widened to other large but also medium-sized, OPW-affected clients.”
‘HMRC’s investigatory focus is on IR35 processes’
Dawson echoed the thrust of VIQU’s LinkedIn post — notably that OPW scrutiny by HMRC is “initiated” with end-clients.
And Dawson confirmed another important point that the IT contractor recruitment agency made, which may make some contractors let out a sigh of relief.
The Kingsbridge IR35 manager said: “HMRC’s focus has been into the application of the rules and processes, rather than employment status matters or principles.”
‘Systems and processes to apply the OPW rules’
From his Birmingham office yesterday afternoon, VIQU’s Mr Collingwood echoed to ITContracting.com:
“Each of the eight Off-Payroll Working Rules ‘Check’ letters from HMRC which I’ve seen informs the recipient — the end-user — of the same thing.
“And that’s this — that HMRC says it would ‘like to talk about the systems and processes your organisation uses to apply the OPW rules.’
“All the HMRC letters have been five-to-six pages in length, and contain between 11 and 13 questions [about IR35 systems and processes].”
‘Provide details of your off-payroll worker spend’
For now, then, the taxman’s OPW investigations focus on procedures put in place to administer the reformed IR35 rules, rather than whether ‘Outside IR35’ (or potentially ‘Inside IR35’) is correct.
In fact, HMRC’s disagreement with Status Determination Statements was not cited by any of the three advisories specialising in IR35 (Bauer & Cotrell, PSTAX and Kingsbridge) which ITContracting.com quizzed yesterday since Mr Collingwood’s post.
Yet when he took to LinkedIn, VIQU’s managing director did say HMRC was interested in the total “spend” by the five end-users on off-payroll workers.
“The HMRC OPW check later states: ‘For the tax year 2022/23, provide details of your spend on contingent labour,’” began Mr Collingwood, quoting the letter directly.
“It then explains – ‘This includes any labour not under an employment contract with you. Please include any labour engaged directly by you, via an agency, or other labour provider. If possible, provide a breakdown of the spend on engagements that would fall under the OPW rules.’”
‘Appears to be more of a compliance programme from HMRC than a campaign’
To Ferguson, such a line of enquiry sounds like HMRC is interested in more than just looking at OPW procedures and processes.
The PSTAX director cautioned: “This HMRC ‘campaign’ appears to be more of a compliance programme than the [prior one at] local authorities.
“[It] may lead to formal compliance reviews. [And already with police forces], HMRC has requested details of all roles paid off-payroll.
“We know that there are likely to be cases that are not clear-cut. We would need to be able to explain [those] to HMRC.”
‘Satisfying HMRC’s curiosity’
Kingsbridge’s Mr Dawson hints the taxman is trying his hand; in effect going in under the guise of checking OPW processes but ready to enforce.
“In the OPW investigations we have closed down, we satisfied HMRC’s curiosity,” Kingsbridge’s IR35 manager says.
“We satisfied, too, any requests for information, [providing] comprehensive evidence [by] working with the supply chains involved.
“It is vital that recruiters take note of this increased activity and work with clients to ensure their determination processes and supporting evidence are both available and can withstand scrutiny.
“A supply chain that works together stands a better chance of being successful.”
‘OPW investigations tend to drag on’
Last night, Hemsworth said OPW “investigations tend to drag on unless the cases are very straightforward, or supported by independent expert’s input.”
“Businesses and contractors need to prepare for a lot more to come in the coming months — and years,” warned B&C’s director, adding:
“Labour’s recently announced plan to recruit 5,000 new…[HMRC] officers indicates that the number of businesses being audited is going to increase even further.
“However, we would also hope [the additional 5,000 tax officials] mean that HMRC processes will become more streamlined and efficient, potentially easing the burden on companies under OPW review.”
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