Will IR35 be applied retrospectively?

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You’re undoubtedly aware of the upcoming private sector reforms, and what impact that will have on companies that must now get to grips with their new responsibilities. Although we're aware that the changes will be delayed until 2021, we wanted to address a key question we've been asked: will the changes be applied retrospectively? 

We’ve heard all about the Status Determination Statement, debt transfer provisions, the introduction of the client led disagreement process, and the shift in responsibility for determining employment status from the worker to the end hirer. 

Once you’ve had a chance to digest all the impending changes, you might find yourself wondering what happens to those personal service company contractors that until 6th April 2021 were operating outside of IR35 and their contract has been found inside Ir35 post 6th April 2021. How long does the liability for compliance extend retrospectively? We answer this burning question and a few more along the way.

How far back can HMRC investigate?

HMRC can choose to investigate as far back as 20 years - although this works on a sliding scale that is dependent on the severity of the transgression. 

Minor, unintentional errors may see HMRC retrospectively investigating contractors up to 4 years back, which increases to 6 years if HMRC can prove carelessness. HMRC will only reexamine an account spanning back 20 years if they suspect fraud or criminal activity. 

It’s crucial to remember that the worker holds all liability resulting from non-compliance for assignments and income received prior to the new financial year, which hails the reforms. 

Any liability arising after this date will be the responsibility of the ‘fee-payer’ - usually a recruitment agency or the end-hirer if they failed to exercise reasonable care or provide a Status Determination Statement. 

Why would HMRC choose to investigate?

Many contractors and industry commentators have raised concerns that HMRC may use a change in employment status as the catalyst to start an investigation. 

Particularly as we see private sector organisations taking a risk averse approach to the reforms and applying blanket determinations to contractors. However, HMRC has iterated that they will only pursue this course of action should they uncover fraudulent or criminal activity.

Retrospective investigations and enquiries are not the intention of HMRC, but mitigating factors such as those we have mentioned above will always warrant a closer inspection by the body. 

Do you need IR35 support or advice for your clients? Visit our knowledge centre here, or get in touch with our agency support team.