IR35 penalties and the Revenue's contract reviews

There is little new in this statement. The Revenue has said for some time that they will charge interest on under paid tax and may charge penalties if they consider that the contractor has deliberately failed to apply the IR 35 legislation.

However, they have confirmed that, especially in the first year of IR 35 when the rules were unfamiliar, they will not seek penalties where there has been genuine uncertainty about a contractor’s status. The penalty notice referred to above says:

“An employer might fail to meet its obligations to file a correct return because of a genuine misunderstanding about the rules caused by their newness. This would be taken into account, along with the effort made by the employer to establish whether a contract is subject to the new rules, when considering penalties”

The Revenue has tried to intimidate contractors into using the Revenue’s informal contract status assessment service by suggesting that a failure to use their service might indicate a lack of effort on their part to establish their status. However, experience indicates that the view being taken by the Revenue is somewhat slanted towards their interpretation of the status tests.

In addition for an opinion to be useful it is needed promptly and preferably before the contract is signed. The Revenue will not review unsigned contracts and they have struggled to meet their self imposed target of responding within 28 days. Hence the PCG has taken the view that contractors should seek an independent opinion on their status from a legal or tax expert rather than the Revenue. These can usually be obtained within 3-5 working days. The PCG’s view of the Revenue’s contract review has been echoed by others such as Roger Sinclair of Egos and by Accountax.

Kevin Miller