A significant proportion of mid-sized organisations are still not confident in their ability to comply with the IR35 changes that took effect over six months ago.
According to tax and advisory firm Grant Thornton UK, one in five mid-sized organisations are not confident they are compliant with the new off-payroll working rules in the private sector – a worry as HMRC’s “light touch” approach to issuing penalties for non-compliance with the rules will end in April 2022.
Changes to the IR35 rules that took effect on 6 April 2021 meant that the responsibility for determining whether a contractor should be deemed an employee for tax purposes shifted to the organisation engaging their services, which could also be liable for their PAYE and National Insurance contributions.
The firm’s survey of 605 mid-sized organisations for its latest business outlook tracker found that only 25% of firms were very confident in their business’s compliance with IR35.
Matt Parfitt, director, employment taxes, at Grant Thornton UK, said that organisations should not delay focusing on addressing the new rules just because HMRC has not yet begun cracking down on non-compliance.
“The new IR35 rules can be difficult to navigate, and it is important that businesses, of all sizes, who are still unsure around their compliance act soon,” he said.
“Businesses have had ample time to prepare, particularly given the previous 12-month delay to the reforms but it’s clear that some mid-market businesses are still not confident in their approach. They should be aware that the current ‘light-touch’ approach to penalties will not apply to those who are seen as being deliberately non-compliant, and it will also not prevent any uncollected PAYE and NICs from being due.
“Those using agencies to source temporary resource should also be aware that a non-compliant approach could already mean that they are on the hook for PAYE and NICs – plus interest – not collected by the agency. This is a potentially serious concern for anyone seeing the ‘light-touch’ approach as an additional 12 months to put compliant processes in place.”
Organisations and bodies representing contractors and recruitment firms earlier this year expressed concerns about the use of umbrella companies in an attempt to circumvent the IR35 rules. Despire pressure to introduce further regulation, MPs voted against measures that would have clamped down on umbrella misuse.