Part Three: ongoing compliance is crucial
In parts one and two of this series we explored how firms can prepare their existing workforce ready for the transition by April 2021. In this final part we examine how to maintain ongoing compliance in the “new normal” or “business-as-usual” BAU.
The impact on contractors working in the private sector cannot be underestimated along with the impact on those companies that rely upon the skills of these on-demand flexible workers. Off-Payroll compliance will prove vital to a firm’s continued engagement of talented contractors, who will naturally seek engagements where they can secure fair tax treatment reflecting their true “outside IR35” status. Those mistreated are likely to quote significantly increased rates or simply seek work elsewhere.
A diligent, structured approach to compliance not only mitigates risk and appeases contractors, it also minimises the added administrative and financial burden of hiring “deemed employees”. The challenge for hiring firms is to navigate the new Off-Payroll world without exposing themselves to an excessive administrative burden or financial risk. Whereas the latter two factors have contributed to concerns of widespread abuse of the legislation, an approach to compliance that mitigates risk and appeases all parties isn’t difficult to achieve. Though Off-Payroll compliance may seem burdensome, it is a relatively swift and simple process for businesses that act early and adopt a quality compliance solution. Fulfilling these requirements should ensure a company continues to benefit from ad-hoc access to key skills without any of the damage or disruption that the Off-Payroll legislation threatens.
But, remember, Off-Payroll compliance is an ongoing process and working practices must continue to reflect the written contract. Monitoring the status of contractors regularly is the only way to ensure none of them go ‘off-piste’, threatening hirers with an unexpected tax bill up to six years later.
Insurance alone is not the silver bullet
Some may view insurance as an alternative to robust compliance processes, but this would be foolhardy. Insurance can obviously prove invaluable, and all businesses are advised to at least secure tax investigation insurance.
However, if a company or client views tax liability insurance as the silver bullet that will negate their compliance obligations, they should be reminded that insurance exists to compensate in the event of unforeseen circumstances, and not to recompense for ill-considered compliance decisions leading to non-payment of due tax.
Insurance companies will expect claimants to endeavour to arrive at the correct status determination and are unlikely to pay out if certain measures have not been taken. This will be explained in the small print of any insurance policy, to which close attention must be paid.
Put simply, an off-payroll defence must be founded on solid compliance and then optionally supplemented by insurance. Providing compliance obligations have been diligently fulfilled, firms should wind up in the enviable position of never having their reputation dragged through a tax tribunal and then having the added stress of attempting to make an insurance claim. As the old saying goes “prevention is better than cure.”
Act early to avoid any nasty surprises
Finally, it is important that firms get their houses in order well in advance of April 2021. If a company or client has failed to address the off-payroll legislation thus far, an exploratory discussion into their compliance plans could help prevent a nasty surprise.
Any contract that overlaps beyond 6 April 2021 is at risk of attracting unwanted attention from HMRC.
The coming weeks are critical for those companies that rely on contractors to get projects done. By taking a proactive and strategic approach to Off-Payroll compliance, firms will be able to hang on to their contingent workforce whilst minimising disruption to projects, mitigate against rising costs and keep their administrative burden at a minimum. Those firms which act now will reap the rewards.
