Although the government has waivered penalties for the first year of the new IR35 Rule, here are some common blunders businesses should avoid staying on the good side of HMRC
Forgetting Relevant Contractor Information on IR35
Under the new IR35 rule, businesses should make sure to identify all the contractors they use by logging the received invoices. This is because as a receiver of a contractor’s services you are essentially liable to make status determinations in addition to whether or not to deduct PAYE and NIC.
Unclear IR35 Policies
When policies are unclear, it could confuse your business’ dealings with contractors, certain off-payroll procedures could be followed incorrectly, and your contractors may not know the IR35 rules. Additionally, if contract mistakes are made, a clear policy can aid in justifying your intentions of using proper measures in processes.
All departments within your business should know how to deal with contractors properly. They should also know who is to be involved. As certain departments could have the up to date knowledge on handling contractors, not on the payroll, however, others could be used to using less paperwork, and information does not reach the relevant departments.
Contractor Status Mistakes
More administration will need to be placed, as correct status determinations for contractors need to be made, and avoid generalized assessments of contractors. Moreover, the assigned status needs to be reassessed at the beginning of each new contract as it could differ between projects. This could cause the business to be liable to pay missed tax. Furthermore even using the HMRC’s CEST tool is not straightforward, as the relevant data needs to be provided. The tool is only as useful as its user.
Inconsistent Payment Process
Payment processes for business expenses need to be clear for VAT purposes. Clear payment processes for contractors who are employees are also essential for tax and NIC purposes. The simplest way to avoid such a mistake is to pay employees through payroll and those off IR35 via accounts payable.
Kind regards Ilyas