What will happen if someone fails to follow the IR35 rules?
If we discover that an employer omitted to include an IR35 deemed payment, and tax and NICs due on it, in their annual return and accompanying documents, or to inform us that provisional amounts have been included, the normal approach to underpaid PAYE/NICs set out in leaflet IR 109 - "Employer compliance reviews and negotiations" will be followed. Recovery of any unpaid tax and NICs will be sought, and any interest due. Penalties may also be sought for an incorrect return.
Where a penalty is sought, either for omitting a deemed payment or failing to meet the above conditions, our practice of abating penalties to take account of the degree of disclosure, co-operation, and size and gravity of the offence, which is covered in leaflet 109, will be followed. An employer might fail to meet its obligations to file a correct return because of a genuine misunderstanding about the rules. This would be taken into account, along with the effort made by the employer to establish whether a contract is subject to the IR35 rules, when considering penalties.
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