IR35 was here, then it wasn’t, and now it’s back again, all in the space of a matter of weeks. So, where do we stand now? Well, we sat down with Energy voice to iron out the details.
During the mini-budget revealed in September by Lizz Truss and Kwasi Kwarteng, the Government repealed the recent changes to IR35 – those introduced in the public sector in 2017 and the private sector in 2021.
IR35 repeal an initial sigh of relief
When the announcement was made there was a collective sigh of relief across the oil and gas sector, with organisations up and down the U.K. welcoming the reduced risk of compliance and tax liability from working with contractors.
The IR35 repeal appeared to be well-timed to help the sector meet the increasing demand for experienced contractors that were expected following an earlier announcement from Liz Truss that she intended to grant new licenses for major North Sea projects.
Has anything changed with IR35?
Despite celebrations from organisations in the oil and gas sector that rely on operating with flexible workforce, the IR35 repeal was short-lived, as was Kwasi Kwarteng’s chancellor career. The new chancellor Jermey Hunt announced on the 17th of October that the changes to the IR35 off-payroll rules introduced in 2017 and 2021 will in fact stay in place.
So, what does this mean?
The responsibility for determining contractor tax status and compliance with the legislation remains the responsibility of the end hirer. Hirers are also liable for unpaid tax and National Insurance contributions, and can be pursued by HMRC if found uncompliant or not meeting the threshold for ‘reasonable care’.
Uncertainty isn’t helpful for hirers or contractors, particularly in today’s economic climate but at least retaining the current off-payroll working rules takes the flexible supply chain back to the position we were in a few weeks ago and provides a bit of certainty.
Have you been wasting time with IR35?
It’s understandable that many feel frustrated with the two-ing and fro-ing. However, the u-turn on the IR35 repeal means that efforts over the past two years have not been wasted. Businesses across the oil and gas sector that took steps to ensure compliance will now benefit from greater access to the flexible supply chain, enabling them to engage contractor resources with confidence.
For those businesses who were hoping for the legislation to be repealed, now is the time to act and set up processes and procedures to ensure compliance with the legislation before HMRC reaches out for evidence.
Could IR35 be reversed again?
The past few weeks have clearly demonstrated that nothing is set in stone. However, as the Government has to balance its books and its budget, our prediction would be – it’s highly unlikely that they will do so again. For HMRC in particular, which is responsible for recouping tax liabilities, it’s easier to ensure compliance with several end hirers compared to thousands of contractors.
However, it’s clear now that the Government acknowledges the current rules aren’t working as expected. If the rules stay in place exactly as they are, more needs to be done by HMRC in terms of education and support for the entire flexible labour market.
The complexity of the legislation itself is also an ongoing challenge for end hirers, with specialist expertise needed to navigate it. The complexity of employment law is something which Brookson knows a thing or two about. That is why at Brookson we have a team of experts who specialise in IR35 and helping hirers of flexible workers comply with the law. To see how we can help you can book a free consultation, here.
The pitfalls of the government’s CEST tool have been widely documented. The use of CEST and other online tools are reliant on the information put into it. If a question is misunderstood or an inaccurate answer input into the software, the outcome will not reflect the contract and will likely be incorrect. This will not meet the threshold of HMRC’s definition of reasonable care.
Added to this is a misconception that determining a contractor’s tax status is the end of the IR35 journey – it’s only the first step. IR35 is an ongoing process where regular training, communication and status determination reviews are needed to maintain compliance. That’s why at Brookson we offer a range of services to ensure you remain complaint and have full control and visbility of your flexible workforce. You can view our range of servicers, here.
HMRC and the Government need to address these challenges to allow businesses to access the flexible workforce as easily and effectively as possible. This will allow organisations to scale up their resource as and when needed to meet project needs and deadlines.
Is there anything else I need to know?
The IMF and markets have strongly indicated that the Treasury must rebalance the books through taxation, so HMRC will be proactively seeking to recoup tax liabilities in the years to come.
It may be tempting to avoid having to comply with the rules by eliminating contractors working via their own limited company from supply chains, but this is likely to have a sting in the tail and reduce access to skilled flexible labour at a time when the North Sea oil and gas sector needs to be competitive. For this reason, it’s vital that energy businesses using contractors get their house in order now – regardless of potential future changes – to avoid unexpected tax bills and fines further down the line.
Due to our team of knowledgeable and experienced lawyers we are able to help hirers maintain a flexible workforce that comply with the law. This is achieved through our unique combination of experience, expertise and credibility. You can learn more about the range of services we offer to hirers here.