During the mini-Budget in September, the Government repealed the recent changes to IR35 – those introduced in the public sector in 2017 and private sector in 2021.
However, shortly after on the 17 October, the repeal was repealed. So, what does this mean for businesses in the oil and gas sector and where does responsibility for IR35 now lie?
The repeal – an initial sigh of relief
The initial mini-budget announcement was widely welcomed by businesses and recruitment organisations across the oil and gas sector, with a collective a sigh of relief. The repeal was expected to remove significant compliance and tax liability risk from organisations engaging with contractors, unlocking the benefits of the flexible workforce for the industry.
This appeared to be well timed to help the sector meet demand for experienced contractors that would be expected following an earlier announcement from Liz Truss that she intended to grant new licences for major North Sea projects. Truss confirmed this licencing round on 7 October.
Is anything changing?
Following an announcement by the new Chancellor on 17 October, the changes to IR35 off-payroll rules introduced in the private sector in 2021 and the public sector in 2017 will remain in place.
This sees the responsibility for determining contractor tax status and compliance with the legislation remain the responsibility of the end hirer. Hirers are also liable for unpaid tax and National Insurance contributions, and can be pursued by HMRC if found uncompliant or not meeting the threshold for ‘reasonable care’.
Uncertainty isn’t helpful for hirers or contractors, particularly in today’s economic climate but at least retaining the current off-payroll working rules takes the flexible supply chain back to the position we were in a few weeks ago and provides a bit of certainty.
Have you been wasting time with IR35?
It’s understandable that many feel frustrated with the two-ing and fro-ing. However, the u-turn on the IR35 repeal means that efforts over the past two years have not been wasted. Businesses across the oil and gas sector that took steps to ensure compliance will now benefit from greater access to the flexible supply chain, enabling them to engage contractor resource with confidence.
For those businesses who were hoping for the legislation to be repealed, now is the time to act and set up processes and procedures to ensure compliance with the legislation before HMRC reaches out for evidence.
Could the changes be reversed?
The past few weeks have clearly demonstrated that nothing is set in stone. However, as the Government has to balance its books and its budget, it’s highly unlikely that they will do so again. For HMRC in particular, which is responsible for recouping tax liabilities, it’s easier to ensure compliance with several end hirers compared to thousands of contractors.
© DCT MediaHowever, it’s clear now that the Government acknowledges the current rules aren’t working as expected. If the rules stay in place exactly as they are, more needs to be done by HMRC in terms of education and support for the entire flexible labour market.
The complexity of the legislation itself is also an ongoing challenge for end hirers, with specialist expertise needed to navigate it.
The pitfalls of the government’s CEST tool have been widely documented. The use of CEST and other online tools are reliant on the information put into it. If a question is misunderstood or an inaccurate answer input into the software, the outcome will not reflect the contract and will likely be incorrect. This will not meet the threshold of HMRC’s definition of reasonable care.
Added to this is a misconception that determining a contractor’s tax status is the end of the IR35 journey – it’s only the first step. IR35 is an ongoing process where regular training, communication and status determination reviews are needed to maintain compliance.
HMRC and the Government need to address these challenges to allow businesses to access the flexible workforce as easily and effectively as possible. This will allow organisations to scale up their resource as and when needed to meet project needs and deadlines.
Is there anything else I need to know?
The IMF and markets have strongly indicated that the Treasury must rebalance the books through taxation, so HMRC will be proactively seeking to recoup tax liabilities in the years to come.
It may be tempting to avoid having to comply with the rules by eliminating contractors working via their own limited company from supply chains, but this is likely to have a sting in the tail and reduce access to skilled flexible labour at a time when the North Sea oil and gas sector needs to be competitive.
For this reason, it’s vital that energy businesses using contractors get their house in order now – regardless of potential future changes – to avoid unexpected tax bills and fines further down the line.