Budget confirmation of IR35 and what this means to recruiters

Following the 2021 Budget announcement in Parliament on 3 March, we can now be sure that IR35 amendments will come into force on 6 April 2021.

Hopefully, most recruiters will have already been working with hirers, reminding them that it is their duty to determine the tax status of contractors, using their own personal service company (PSC). Failure to do so will result in large tax penalties and investigation costs. It is worth noting however, that the Government has stated:

“Customers will not have to pay penalties for inaccuracies in the first 12 months relating to the off-payroll working rules, regardless of when the inaccuracies are identified, unless there’s evidence of deliberate non-compliance.”

However, hirers must display a duty of care in carrying out the tax status determination of contractors to avoid falling foul of potential tax investigations. No doubt, hirers will be looking to recruiters to provide support with third party assessment tools or indemnities, in the event that the HMRC come knocking. So, checking contract terms and conditions will be paramount, along with providing careful advice to hirers so they stay within the rules of IR35.

The Government will undoubtedly be focussing on restoring the economy to good heath following the easing of lockdown restrictions. A major part of that exercise will be to carry out a recovery of unpaid tax, and identify and potentially act upon any fraudulent use of the furlough scheme, loans and grants which supported jobs and businesses during the pandemic.

How can recruiters protect themselves from the impact of a tax investigation?

Recruiters may wish to consider the benefits of protecting their businesses through an insurance cover for tax investigation costs, as well as potential liabilities that may flow down from the hirers after investigation. With HMRC looking into possible frauds carried out during the pandemic, it would be wise for directors and senior officers of businesses to also seek protection through an adequate directors and officers’ liability insurance policy, as they undoubtedly will be the ones under the microscope.

The insurance market is hardening due to a number of factors including Covid-19 claims, and unsurprisingly has been increasing its rates for directors and officers’ liability insurances ahead of this expected increase in activity by HMRC.

Whilst the opening up of the economy over the next few months should be a positive time, business owners must be ready and protected should they fall foul of the HMRC for non-compliance. For more information on IR35 insurance, please contact our recruitment insurance team.

^{Statements concerning legal, tax or accounting matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal, tax or accounting advice, which we are not authorised to provide.}

^Sources:

<sup>1. https://www.gov.uk/government/publications/hmrc-issue-briefing-supporting-organisations-to-comply-with-changes-to-the-off-payroll-working-rules-ir35/hmrc-issue-briefing-supporting-organisations-to-comply-with-changes-to-the-off-payroll-working-rules-ir35
2. https://news.law.fordham.edu/jcfl/2020/11/02/one-more-challenge-for-directors-and-officers-their-2021-do-insurance-renewal/</sup>