HMRC updates deemed employer guidance on IR35 off-payroll rules

HMRC has updated its IR35 ‘deemed employer’ guidance, as part of a series of off-payroll resource changes which are “worth a review.”

Chris James, of contractor accountancy firm Workwell, positively responded to the updates yesterday, by directing contractors, recruiters, and end-clients to the guidance on .gov.

But visitors to the deemed employer page may be thrown by the update notes dated March 7th only stating: “Details of the off-payroll working rules prior to April 2021 have been removed.”

'Multiple updates, minor changes'

In fact, HMRC made “multiple updates” to its IR35 guidance, mainly the deemed employer guidance but other sections too for the IR35-affected, observes tax lawyer Rebecca Seeley Harris.

Asked if the lawyer, who is the boss at ReLegal Consulting, is correct an HMRC spokesperson maintained: “We have simply made some minor changes to our guidance on the rules, to help make it clearer”.  

The HMRC spokesperson then cited four revised areas, with one of them ('improving the customer journey' in HMRC-speak) having four parts, albeit all concerned with providing, reordering, or increasing hyperlinks.

Details aside, many observers will regard the updates, as a whole, as proof that HMRC expects Spring Budget 2023 to do nothing to the off-payroll rules except keep them in place.

'No IR35 rules have changed'

More significantly, while “no IR35 rules have changed” -- as emphasised by the HMRC spokesperson -- the update reflects the 2021 reforms being out of implementation and now in-force.

At Workwell, head of limited company accounting Mr James reflected: “[This update series] moves the guidance from an implementation position to a ‘business as usual’ footing.”  

Russel Upton, a director at Parasol, says following “whisperings” that IR35 may be contained in the chancellor’s March 15th statement, HMRC appears to have beaten him to the punch.

'Eight IR35-related pages updated'

Upton hinted that the Revenue may have even caught out HMT, as it has “moved more quickly” than its bedfellow department by updating eight IR35-related pages in total.

The eight include Off-payroll Working for Clients; Understanding Off-payroll working, Check if you’re an Employment Intermediary and Deemed Employer Responsibilities.

Previously seconded by HM Treasury to advise on IR35, Seeley Harris says she regards the responsibilities of the ‘deemed employer’ as “onerous.”

'Footing the bill'

“The qualifying person at the lowest point in the labour supply chain in possession of the SDS… [is] responsible for paying the relevant tax for the deemed employee if they have received a SDS from the client that the contractor is inside IR35.

“They are not allowed to deduct the employer's taxes from the contractor's employment income,” she said. “So, unless they have made arrangements with the client, they will end up footing the bill themselves.”

But where a client issues an outside IR35 determination to the PSC and HMRC then succeeds in challenging, it is the fee-payer, as the deemed employer, who will be liable for back tax.

'Worst part of the revised IR35 legislation'

The tax lawyer added: “So, as long as the client has taken reasonable care, despite the fact that the feepayer has no part in the decision-making, it is they who will end up with a bill for tax. This is the worst part of the legislation for me.”

At Stonebridge Contracting, head of compliance Olivia Sear echoed: “This has always been grossly unfair and [so we] agree, it’s definitely the worst part of the legislation.” 

Parasol’s Upton confirmed that the ‘deemed employer’ not being a fixed party ‘adds yet more complexity to a set of rules already widely misunderstood by many'.

'Vital new piece in the off-payroll puzzle'

Yet a contingent workforce strategy expert is clearly pleased that there is now refreshed guidance on the deemed employer for off-payroll purposes, alongside seven other revised off-payroll pages on .gov.

At odds with HMRC’s characterisation of the updates as minor in importance, the expert, Marta Eccles called the deemed employer page alone a “vital new piece" to consider in the IR35 and off-payroll working rules “puzzle.”