Banner triangles

IR35 A Year in Review: How is compliance being enforced?

The new off-payroll working rules (‘OPWR’) for the private and third sector came into effect on 6 April 2021, but what impact have the changes had so far? Here we focus on HMRC’s approach to the new rules and some recent tax tribunal decisions.

For a summary of the changes brought about by the new rules and the common mistakes when applying those rules, take a look at the first article in this series here:

IR35 A Year in Review - Common pitfalls with IR35 compliance (

What approach has HMRC been taking to the new OPWR?

Organisations have had a brief respite in respect of the new OPWR regime; its implementation was delayed by a year due to COVID-19 and then HMRC agreed that organisations would not have to pay penalties in the first 12 months for inaccuracies unless there was evidence of deliberate non-compliance.

HRMC also confirmed it would not use information acquired as a result of the changes to the OPWR to open a new compliance enquiry into returns for tax years before 2021 to 2022, unless there is reason to suspect fraud or criminal behaviour.

In April 2021, HMRC published the principles, set out below, underpinning the way it would approach enforcement by supporting customers to comply with OPWR and how it would only intervene where it suspected non-compliance:

  1. Support customers who are trying to do the right thing and comply with the rules.
  2. Help customers meet their responsibilities under the off-payroll working rules.
  3. Where customers make a mistake, help them correct it.
  4. Check that mistakes are corrected.
  5. Identify and correct non-compliance with the off-payroll working rules.
  6. Challenge deliberately non-compliant customers.
  7. Challenge tax avoidance schemes that claim to avoid the off-payroll working rules or otherwise reduce the tax payable.
  8. Use a specialist team to carry out all off-payroll working compliance activity.

Will this approach change now that the first 12 months of the new regime have passed?

The principles, set out above, have not been updated since April 2021, suggesting that HMRC will continue, at least for the time being, to adopt a supportive compliance approach.

There was some consternation back in September 2021 when HMRC wrote to certain businesses to open OPWR compliance checks. The initial targets were within both the oil and gas, and financial services sectors, which typically use high numbers of contractors.  This was not necessarily an exercise to be feared if the businesses in question could show they had applied the rules honestly and to the best of their ability. HMRC also stated in their correspondence that they would assist in correcting mistakes (if any) and would only take further action should a business be resistant to correcting mistakes or strengthening internal processes. Whilst this exercise caused some initial concern amongst these sectors, arguably it is in line with the published principles of a more supportive approach to enforcement.

That said, whilst the approach might seem supportive in nature, deliberate non-compliance will not be tolerated. Those found to be intentionally defrauding the system are being ‘named and shamed’ online by HMRC in a list of ‘deliberate defaulters’ detailing names and addresses along with the total tax liability and penalties charged. The penalties in the list range from £12k to over £1 million. Any deliberate non-compliance would be considered criminal activity and could also lead to prosecution and this approach will not change.

Developments in the tax tribunals

In the event of a dispute between HMRC and an individual as to whether they are employed for tax purposes, HMRC’s decision may be appealed to the Tax Tribunal, which is completely independent of HMRC.

As yet, there are no reported cases which have emerged post implementation of the new OPWR. However, there are recent tax judgments which consider employment status for tax purposes and which will be relevant when considering the new OPWR obligations in the private and third sectors.

In the widely reported case Basic Broadcasting Ltd v Revenue and Customs Commissioners [2022] UKFTT 48 (TC) concerning Adrian Chiles and his tax liabilities, the First Tier Tribunal (FTT) applied the three-stage test originating from Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 Q.B. 497 to determine employment status for tax purposes, namely:

  1. whether personal service was provided to the alleged employer;
  2. whether there was a sufficient degree of control over the alleged employee; and 
  3. whether all other facts are consistent with a contract of employment.

The FTT found that points 1 and 2 were satisfied, but when considering the overarching facts of the case, the FTT held Mr Chiles was in business on his own account since he paid an agency management company to find him work, had a significant number of other clients to whom he provided a wide scope of work and hired his own personal assistant. ITV and BBC were considered just two of his clients and as such the facts were not consistent with a contract of employment and there was no deemed employment.

This case is an important indication of the way in which the tax tribunals will approach cases to determine tax liability.

Another recent case focused on the requirements necessary to determine employment status for tax purposes is HMRC v Professional Game Match Officials Ltd (PGMOL) [2021] EWCA Civ 1370 which concerned the status of professional football referees. The FTT and Upper Tribunal (UT) both held the referees were not PGMOL’s employees for tax purposes because there was no mutuality of obligation present between PGMOL and the referees. There was no obligation on PGMOL to offer matches and no obligation on the referees to accept matches offered to them. However, the Court of Appeal allowed HMRC’s appeal against this finding.

Although the Court of Appeal held there was no mutuality of obligation in the overarching contract because PGMOL was not obliged to offer work and the referee was not obliged to accept it, the Court of Appeal agreed with HMRC that the FTT and UT had made an error deciding there was insufficient mutuality in respect of the individual match-day contracts entered into once the referee had accepted the offered match. The Court of Appeal decision makes it clear that there should not be an over reliance on mutuality of obligation and that all of the circumstances should be considered when deciding if the arrangement is consistent with a contract of employment (point 3 in the test set out above).

Whilst the Court of Appeal’s decision appears to suggest the mutuality of obligation test will be met where there is a contract with an individual who performs services for payment, the case has been sent back to the FTT to reconsider whether, in these particular facts, there was sufficient mutuality of obligation and control over the referees under the match-day contracts for them to be employed for tax purposes.

So where does that leave employers? The Court of Appeal decision adds weight to HMRC’s position that the ‘significance of mutuality of obligation is that it determines whether there is a contract in existence at all’. Despite this, HMRC’s online tool to help determine whether a worker should be classed as a deemed employee for tax (Check Employment Status for Tax (CEST)) does not address explicitly the issue of mutuality of obligation in its questions. HMRC has been criticised for adopting this approach, particularly as many organisations are using CEST to assist them in completing a status determination under the new OPWR. However, HMRC can rely on the Court of Appeal’s decision to help justify its approach.

Whilst there are no specific questions in the CEST assessment on mutuality of obligation, the CEST guidance states: ‘There must be a contract in place to see whether the engagement is classed as employment or self-employment. The tool assumes there is, or will be, a contract in place.” It appears that employers are unable to use CEST in cases where there is no such contract.

It is frustrating that the Court of Appeal has referred the appeal back to the FTT. In the meantime, uncertainty remains in relation to mutuality of obligation and control. This is further evidenced by the fact that HMRC has published data on the usage of CEST which shows 21% of users have received an ‘undetermined status’ outcome. In our view a more accurate assessment, which would be less open to interpretation, could be achieved using CEST if mutuality of obligation was explicitly addressed in the questions being asked.

Coming up

Next time, in light of the new OPWR, we will be considering alternatives to engaging contractors through intermediaries.


This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. © Shoosmiths LLP 2022.


Read the latest articles and commentary from Shoosmiths or you can explore our full insights library.