Penalties now apply to businesses that make mistakes under new IR35 rules for the private sector.
The Government extended the off-payroll working rules reform to the private sector in April 2021, but promised to be lenient on mistakes in the first year.
The landing period has now ended, so employers caught within the reformed IR35 rules will have to pay a penalty of their unpaid tax between 30-100%.
Introduced in 2000, IR35 was designed to prevent tax avoidance by contractors who supply their services via intermediaries in a way so they enjoy the benefits of ‘employment’ and a lower tax rate than actual payrolled employees.
Known as ‘disguised employment’, this loophole was costing the Government millions of pounds in lost taxes each year. Recent updates made the hirer, rather than the contractor, responsible for designating employment status and rolled out the new rules from just public sector businesses to medium and large private businesses.
After one year, some businesses seem to be struggling, with one YouGov survey suggesting the reform of IR35 has negatively impacted the finances of two in five companies.
Derek Cribb, chief executive of the Association of Independent Professionals and the Self-Employed, said: “The changes to IR35 in the private sector in April 2021 have made it harder for [businesses] to hire contractors and has therefore made it even more difficult for them to grow during these turbulent economic times.”
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