PAYE & Employer Tax Compliance Solicitors — IR35, Loan Charge, Disguised Remuneration, and HMRC Compliance Checks

IR35 applies where a worker provides services through an intermediary (typically a personal service company) and the working arrangements are such that, absent the intermediary, the worker would be an employee of the client. Under Chapter 8 ITEPA 2003 (applicable to small private sector clients and historical engagements), the IR35 determination is made by the PSC. Under Chapter 10 (public sector from April 2017; medium and large private sector from April 2021), the end-client must provide a Status Determination Statement (SDS) and is responsible for PAYE on deemed employment payments where IR35 applies. HMRC challenges IR35 determinations through enquiries into the PSC (Chapter 8) and compliance checks on end-clients (Chapter 10). A solicitor analyses the working arrangements against the key IR35 tests (control, mutuality of obligation, substitution, integration, financial risk) and advises on the strength of the IR35 position.

The Loan Charge (Finance (No.2) Act 2017) applies to disguised remuneration scheme loans made since 6 April 1999 that were outstanding on 5 April 2019 (subject to amendments following the independent review). The outstanding loan balance is treated as employment income taxable in 2018/19 — subject to spreading provisions over three years where the income exceeds £30,000 in 2018/19. The charge applies to individuals who used contractor loan schemes or employee benefit trust (EBT) arrangements and did not settle with HMRC before the Loan Charge took effect. Individuals who disclosed loan arrangements on their self-assessment returns for years before the relevant "protected year" cut-off may not be subject to the Loan Charge for those years. A solicitor advises on the scope of the charge, the applicable exclusions, and all available mitigation options.

A business should not agree with HMRC's reclassification without taking specialist legal advice. Employment status for tax purposes is determined by the totality of the working arrangements — not the label in the contract. A solicitor reviews the contractual documentation and working practices, identifies the strongest arguments for self-employed status (absence of mutuality of obligation, right of substitution, personal financial risk, provision of own equipment, absence of integration into the client's business), prepares a detailed representations response to HMRC, and — where necessary — represents the business at the Tax Tribunal. Agreeing to a reclassification without challenge can result in substantial backdated PAYE and NICs liabilities covering all affected workers.

HMRC can charge penalties for PAYE failures under a range of statutory provisions: failure to operate PAYE (FA 2009 Sch 56 — late payment penalties); failure to file PAYE returns (FA 2009 Sch 55 — late filing penalties); inaccuracy penalties (FA 2007 Sch 24 — 0–30% careless; 20–70% deliberate; 30–100% deliberate and concealed). For NIC failures, penalties are imposed under the Social Security Contributions and Benefits Act 1992 and associated regulations. A solicitor analyses whether each penalty has been correctly raised, whether a reasonable excuse applies, and whether special reduction applies — and challenges HMRC's penalty assessments through statutory review and tribunal appeal where appropriate.

Under Chapter 10 ITEPA 2003 (off-payroll working), a medium or large private sector client engaging a worker through a personal service company must produce a Status Determination Statement before or at the start of each engagement — setting out whether the engagement is within IR35 and the reasons for that determination. The SDS must be passed to the worker and the fee-payer. A worker who disagrees with the SDS can raise a status disagreement through the client's Status Disagreement Process (SDP). If the client fails to respond within 45 days, the PAYE obligation transfers to the client. A solicitor advises clients on SDS compliance, prepares defences to SDP challenges, and advises workers on challenging incorrect SDS determinations.