26 January 2020
HMRC has published two draft Regulations that explain how it will recover unpaid income tax and NICs from April 2020, when the new IR35 rules come into effect.
The new rules will make medium to large employers in the private sector and who engage contractors via intermediaries (the clients), potentially liable for income tax and NICs that should have been paid on the contractor’s earnings by other parties who are further down in the supply chain.
The draft regulations confirm that HMRC will first seek to recover any unpaid tax and NIC liabilities from the agency the client contracts with, where this agency is UK-based (agency one in the labour supply chain). Where HMRC are of the view that there is no realistic prospect of recovering the outstanding Income Tax or NICs from agency one, HMRC will then seek to recover unpaid liabilities from the client. HMRC will issue a recovery note to transfer the debt and there will be a right to appeal.
HMRC have issued a technical note to accompany the draft regulations. The note states that HMRC will not transfer the debt in the case of ‘genuine business failure’ of the party ordinarily liable to pay income tax and NICs, but it does not explain what constitutes a ‘genuine business failure’.
The consultation on the draft regulations closes on 19 February 2020.
Click here for the draft regulations, technical note and details of how to take part in the consultation.