Four in 10 firms unprepared for IR35

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Nearly four in 10 (38%) mid-sized organisations are not prepared for the introduction of IR35 off-payroll working changes, with just under three weeks to go until they take effect.

According to accountancy firm Grant Thornton, only six in 10 employers are ready for the upcoming changes, despite organisations having had an additional year to prepare for the extension of updated IR35 rules into the private sector.

Thirteen per cent have done only minimal preparation, while a further 25% had been preparing but were still not ready for the deadline.

From 6 April 2021, the responsibility for determining whether a contractor is deemed an employee for tax purposes shifts to the organisation using their services. This means that firms could be liable for their PAYE or National Insurance contributions if a contractor is deemed by HMRC to fall within the scope of the IR35 rules.

The changes were originally set to be introduced in April 2020, but the government delayed them by a year in recognition of the pandemic-related challenges many organisations had been facing.

Bethan Gill, an associate director in Grant Thornton UK’s people advisory team, recognised that the rules can be difficult to navigate, but said there was still time for organisations to put compliance measures in place.

“Businesses should be taking action now to ensure that they have considered their position and properly assessed the impact of the new rules and how it can be effectively and compliantly managed,” she said.

“While the theory behind the legislation is relatively straightforward, there are many practical considerations when applying the new rules. These include how to identify contractors, the best approach to assessing their employment status, communication with relevant parties, potentially operating payroll withholding and managing potential disputes.”

Grant Thornton’s survey involved 605 senior decision makers at companies with an annual turnover of between £50 million and £500 million.

While it is seen as a compliance burden for many, Gill said the preparation for IR35 has given many organisations an opportunity to review their wider resourcing strategy.

A separate study by technology firm SAP and think tank Oxford Economics found that 62% of executives felt the external workforce provided extra capacity to handle peaks in demand, while 54% felt it helped them recover from business downturns.

SAP’s Henrik Smedberg, head of intelligent spend management for UK and Ireland, told Personnel Today earlier this month: “Some of this legislation heightens the awareness of, and the need to take control of, finding the right talent, retaining the right talent, and making sure that we can manage it.”

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