Big business still ‘hiding employees’ from tax rules says law firm
HMRC suspects large businesses of underpaying £1.4bn in employment taxes as it cracks down on “hidden employees” or self-employed workers that HMRC believes are really employees for tax purposes, according to multinational law firm Pinsent Masons.
The law firm said: “HMRC is likely to be concerned that some large businesses are underpaying Employers’ National Insurance contributions by classifying some of their workers as self-employed when they should be employees for tax purposes. This could include both workers who are paid by businesses on a self-employed basis and those who are paid through a personal service company (PSC) and fall within the IR35 rules.”
HMRC recently won a tribunal case against Alan Parry, the former Sky Sports football commentator, regarding whether he should have been taxed as an employee under IR35. The tax bill was £356k.
The government changed the tax rules for off-payroll workers – known as IR35 – in April 2021. The new rules imposed tax and compliance risks on large and medium-sized businesses when engaging individuals through PSCs. Previously, the contractor was responsible for applying IR35 and paying any employment taxes that were due.
Penny Simmons, a legal director at Pinsent Masons, said: “These figures suggest that HMRC still believes that many large businesses are continuing to pay contractors on a self-employed basis, when they should be employees for tax purposes. This may be because HMRC considers that they are not applying the IR35 rules correctly, although this may also reflect that HMRC is increasingly questioning whether businesses should be paying individuals on a self-employed basis (even when the IR35 rules don’t apply because the workers are not engaged through PSCs).
In recent months, HMRC has begun to levy penalties on businesses that have misapplied the IR35 rules having given them 12 months’ grace period following the IR35 rule changes, said Pinsent Masons partner Steven Porter.
“Off-payroll workers are one of HMRC’s biggest priorities at the moment – even businesses that have sought to comply with the IR35 rules are finding themselves in the crosshairs.
“HMRC believes it may be missing out on more than a billion pounds a year from large businesses that are paying workers on a self-employed basis. Figures on that scale will push off-payroll workers to the front of the queue when it comes to HMRC opening investigations.”
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