February 24, 2021

Government confirms 12-month grace period for IR35 penalties

News Article

New guidance published by the Government ahead of the implementation of off-payroll IR35 rules for the private sector has confirmed that penalties will be waived for the first 12 months of implementation.

Samantha Randall, an Associate with Palmers Solicitors, who specialises in employment law, said: “The guidance confirms that it will be mandatory for employers to assess a contractor’s employment status for tax purposes, with those not doing so facing financial penalties.

“However, the first 12 months will see fines being waived, other than in cases where there is evidence of clear and deliberate non-compliance.”

Specific employment determinations will not be made by the Government, the guidance has confirmed, but it will provide ‘support based on our view of the employment status indicated and give advice on best practice to help you fulfil your obligations’.

The Government has also stated that it will aim to support businesses that are attempting to comply with the law, stating that businesses which “take reasonable care to apply the off-payroll working rules correctly but still made a mistake, including making mistakes in status determinations” will not face penalties in the first year.

Samantha continued: “The new off-payroll IR35 rules are set to come into force on 6 April 2021 and will affect many businesses operating in the construction and engineering sectors. Even though the Government has announced a 12-month grace period, employers are being urged to prepare now to ensure that they are adequately prepared ahead of implementation.”

A recent survey of 3,300 contractors indicated that 52 per cent of in-work contractors in the private sector still need the businesses they engage with to determine their status under the IR35 rules, highlighting the importance of employers preparing for the upcoming changes.

For help and advice on matters relating to IR35 and employment law, please contact our expert team.