HMRC stated in letters to contractors working for GSK that they needed to ensure they were engaged properly. In an unprecedented move, the correspondence appeared to put pressure on the contractors themselves, but did HMRC perhaps reveal a shift in how they're going to enforce IR35 from April 2020?
Whilst the legislation covering off payroll workers remains much unchanged, the burden of assessment of IR35 status and associated unpaid taxes shifts from the contractor to the end client from next year (where the business is considered medium or large). The advice from HMRC has been unclear to say the least, but, as an industry, we're starting to understand some of the changes we need to make.
End clients will need to assess each contractor engagement individually - blanket declarations could prompt employment tribunals. There is also a new appeals process that businesses must follow where a contractor doesn't agree with the assessment outcome. They must produce evidence for their decision that actually holds weight, reducing the effectiveness of blanket declarations even further.
Additionally the whole supply chain including recruiters, and particularly fee payers are left exposed if they haven't carried out the correct due diligence. One of the more worry-some aspects of this relationship centres around the end client not being able to pay any outstanding tax bill. In this scenario, HMRC will run down the supply chain seeking to recover their costs.
If you haven't individually carried out due diligence this will be extremely tough to argue.
What was interesting about the GSK situation is that it perhaps identifies a new tactic that HMRC may use to enforce compliance. Up to now, contractors have been very wary of any enquiry as to their IR35 status due to their potential for massive financial exposure. With this threat now lifted as the burden has been removed, could HMRC take a bottom up approach in identifying companies flouting the rules?
They only need one chink in the armour, one contractor to reveal the truth, and they have a way of very quickly identifying businesses who aren't playing ball.
Whatever tactics they use, HMRC are deadly serious about this massive change to the legislation, they fully intend to realise the huge financial gain from it, so it's more important than ever that you have robust processes in place for contractor engagements, wherever in the food chain you may sit.