HMRC potentially writes off billions with regards to IR35 contractors whilst those caught up in the 2019 loan charge face an uncertain future.
HMRC’s own figures suggests that the extension of the reforms to the off payroll working rules (IR35) into the private sector will generate £3 billion to the public coffers over the next 4 years or to put it differently, currently (HMRC’s figures) only one in 10 contractors are playing by the rules!
HMRC has recently updated its guidance with regards to the implementation of the new private sector rules and in doing so has surprisingly announced that – HMRC have taken the decision that they will only use information resulting from these changes to open a new enquiry into earlier years if there is reason to suspect fraud or criminal behaviour.
It’s not entirely clear what this means.
April 2020 & Beyond
From April 2020 the engager (the end user) will be responsible for deciding that the contractor should, had there not been the imposition of an intermediary (a personal service company), be properly treated as an employee and in these circumstances the fee payer (who may be the same as the engager or further down the supply chain) is responsible for operating PAYE and NIC. The information is presumably the deduction of PAYE and NIC. In other words that the relationship falls within the new provisions and presumably also fell within the earlier provisions!
More importantly is the apparent undertaking not to enquire into earlier years (subject to the caveat as to fraud or criminal behaviour which sets a very high bar). In giving this assurance HMRC are apparently willing to write off at least £3billion of unpaid tax and in so doing depriving the hard-pressed public services of additional funding. Whilst HMRC is given wide discretionary power it would be surprising if HMRC had not received tacit approval for such a move from the Treasury.
At the same time HMRC continues with its 2019 Loan Charge campaign. Whilst Boris has announced a review of the “20 year retrospective loan charge” HMRC has stated that even if the review suggests a u – turn, they will continue to pursue contractors under the existing disguised remuneration, pre loan charge, legislation.
Many contractors will be impacted by both the loan charge and the IR35 provisions and might feel, with possible justification, that they are the subject of excessive HMRC attention and of course ask why HMRC are willing to write off £3 billion in one case but in another pursue liabilities going back 20 years.
There is no readily apparent answer, possibly someone at a senior level has decided that contractors cannot be squeezed any further by the tax system. The more cynical may take the view that HMRC are just responding to a lack of trained staff and don’t want to have another target to miss.