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HMRC sets expectations on IR35 good practice – a new era?

In November 2023, HMRC issued its latest Guideline for Compliance note (GFC4) entitled ‘Help to comply with the reformed off-payroll working rules (IR35)’. The guidelines extend to fourteen parts and are intended to demonstrate what HMRC regards as best practice in relation to compliance with off-payroll working rules.

Overview

GFC4 is primarily intended for public sector and medium-sized and large private businesses using the services of off-payroll workers operating through intermediary entities (most commonly personal service companies), following the introduction of revised administrative requirements for the intermediaries’ legislation (often referred to as the IR35 rules) from April 2017 for public sector entities and from April 2021 for medium-sized and large businesses in the private sector. The guidance provided will also be of interest to recruitment businesses and other third-party providers of labour.

The guidelines contain examples of what HMRC considers to be good end-to-end systems and processes, and it is stated that following them will help businesses reduce the risk of making errors and incurring penalties.

Businesses of all sizes should, in any event, consider whether workers they use who are operating as self-employed sole traders are genuinely self-employed, following the separate HMRC tools and guidance on employment status.

The key expectations

GFC4 includes different scenarios and examples of expected compliance processes for medium-sized and large businesses that, since 2021, are required to assess the employment status of off-payroll workers they engage. As a high-level summary, some of the key HMRC expectations of such businesses and public sector organisations engaging off-payroll workers are as follows.

Summary

As we approach the third anniversary of the introduction of the revised IR35 administrative rules for medium-sized and large businesses, it is clear that HMRC is ramping up its compliance activity in this area. It is important that these businesses and public sector organisations review the GFC4 guidelines and ensure that their end-to-end processes and procedures are in line with HMRC’s expectations.

The GFC4 guidelines are very much focused on organisations that engage workers through intermediaries and are subject to IR35. Nevertheless, all businesses should remember that they have obligations to ensure that any self-employed individuals working for them directly are genuinely self-employed. Failure to do so could result in significant liabilities.

For more information, please get in touch with David Williams-Richardson or your usual RSM contact.

authors:david-williams-richardson