Compliance with the new Off Payroll Working rules: HMRC is actively targeting the oil & gas, banking and finance sectors

The new off-payroll working rules (“OPW” or commonly referred to as “IR35”) came into effect for large and medium size businesses in the private sector from 6 April 2021. Since then, it has been the responsibility of businesses to ensure that the employment status of their contractors is determined correctly and, where the OPW rules require, the business will have additional obligations to fulfil.

However, this month HMRC has started issuing letters to organisations operating primarily in the oil & gas, banking and finance sectors to review their compliance procedures to determine that they are correctly operating the OPW rules and / or PAYE, where applicable.

In this article we look at HMRC’s current approach and how businesses should prepare.

HMRC is sending a letter opening compliance checks into organisations to understand processes for:

  • Hiring contractors who work through their own intermediary, such as a Personal Service Company (PSC) – this could be either directly or using an agency or other labour provider
  • Deciding the employment status of these workers
  • Deciding if any services you outsource are fully contracted out and therefore outside the scope of IR35

In the first instance, HMRC is requesting telephone discussions with the responsible person within the organisation and offering support to get the processes right. Following these calls, HMRC will decide whether further action is needed. This could include a request for more detailed information for further review.

HMRC has suggested that it wants to work alongside businesses to improve the systems and processes in place. If HMRC identifies that something is wrong, then PAYE, NIC, Apprenticeship Levy and interest may be due. HMRC may also charge penalties, however these will not be charged for mistakes during the 2021/22 tax year.

How can businesses prepare?

We have no doubt that HMRC’s compliance checks will expand to other organisations within the private sector in due course. Similar compliance checks in the public sector since the IR35 rules were introduced in April 2017 have resulted in substantial settlements reported to exceed £130m.

It is important therefore that organisations show they have taken reasonable care in applying the OPW rules, explain the actions they’ve taken to update their policies and processes to comply, demonstrate their understanding of the associated risks and the controls they have introduced to mitigate these.

Businesses should take the opportunity to review their systems and processes for dealing with off-payroll workers now. This will ensure they are able to proactively deal with any areas of concern and that they are well placed to demonstrate a compliant and best practice approach to HMRC.

How can we help?

At MHA Tait Walker, we have a comprehensive understanding of IR35 legislation. If you have any questions, please contact us on 0191 285 0321 or email advice@taitwalker.co.uk.