The Association of Mortgage Intermediaries (AMI) said firms may be at risk that have not reviewed their structures in light of the ‘many moving parts in the landscape’ and it wants all firms, large and small, to check new and old employee status ahead of implementation next month.
The tax change moves the tax liability for self-employed or contractor status from the individual to the employer in a bid to stamp out assumed widespread tax avoidance from contractors working for a single company.
Where the rules apply, the organisation, agency or third party paying the worker’s company will need to deduct income tax and employee and employer NICs.
Medium-to-large sized businesses in the mortgage industry with 200 plus employees, like larger mortgage or IFA networks and their members, could be hit by the changes.
Robert Sinclair, CEO of AMI said the debates on liability and compliance continue in the industry.
“I am having conversations with larger firms saying are you sure you’ve got this right? Because if you’ve got it wrong you’ll be liable for all the tax and NI you haven’t collected – and that’s the risk to your business.
“Meanwhile, if you’re on the other end of this as a small firm and wrongly declaring yourself as IR35 and netting everything off then that will be down to the Inland Revenue to make a judgement and it’ll be you that’s in the dock individually at that point.”
Sinclair said he asks firms to show him the difference between those who are employed and self-employed adding that there is still huge variety of opinion around the industry on this.
“But we will only know the answer when the revenue knocks on the door, if they ever do,” he added.
“If someone is genuinely self-employed then that’s fine. But they need to be clear for themselves what they are declaring. My view is, if you’ve got it structured in the right way, it’s not a problem. It’s about having whatever contracts are in place properly documented.”
Penny Simmons, legal director at Pinsent Masons and a specialist in tax risk management, said: “There is no precise definition of what employment for tax status looks like.
“Inland Revenue has been at pains to point out that employment law and tax laws are different and just because someone is taxed as an employee, doesn’t make them an employee for employment law or rights purposes.”
So, effective compliance will come down to the facts and detail of each individual case, she said.
IR35 has been talked about for a long time and awareness and publicity has been high, said Simmons, but if any firms haven’t started preparations yet, they should make a start without delay.
“The first thing they should be doing is conducting a due diligence exercise, review and find out the full scope of the contractor population directly or through agencies. Once they’ve done that, firms should work out strategically how they are going to manage their IR35 risks,” she said.
Some firms are barring all contractors to eliminate risk from the supply chain completely, others are continuing to work with self-employed workers but issuing a status determination statement and deducting tax as and when required.
HMRC has published an updated factsheet and confirmed that the planned reforms do not apply to the smallest businesses, there will be no targeted investigations and will not be retrospective.
Firms and individual brokers can check for compliance by accessing the Cest (Check employment Status for Tax) tool.