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News release

Fears around mid-market’s IR35 compliance

With HMRC’s ‘light touch’ approach to IR35 compliance enforcement set to end in April 2022, new research from Grant Thornton UK LLP’s latest Business Outlook Tracker* finds that the mid-market is still struggling to comply with the changes.

The survey of 605 mid-sized businesses finds that one in five (19%) are still not confident in their business’s compliance with IR35.

From 6 April 2021, for large and medium sized businesses, the responsibility for determining whether a contractor is deemed an employee for tax purposes shifted to the end-user of their services. Broadly, this means that organisations have new obligations regarding their population of contractors within scope of the updated off-payroll working rules (IR35) and could ultimately be liable for PAYE and National Insurance Contributions (NICs) on this population.

However, HMRC has confirmed that it will take a light touch approach to penalties until April 2022.

With only a few months to go before the ‘light touch’ approach ends, less than three quarters of respondents (68%) were found to be confident in their business’s compliance. With only 25% responding that they were ‘very confident’.

This latest research follows an earlier edition of the Tracker in January which found that only just over half of the businesses surveyed (59%) believed they were ready for the IR35 transition in April 2021. Over one in three (38%) were found to not be fully prepared for the changes.

Commenting on the results, Mike Herdman, Director, Employment Taxes, Grant Thornton UK LLP, said:

“While HMRC may be taking a ‘light touch’ approach to penalties for the first 12 months, this does not mean that businesses should delay focusing on addressing the new rules and understanding how they impact their business, to ensure they are compliant.

“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. 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.”

The research follows the recent launch of Grant Thornton’s Employment Status Intelligence Platform (ESIP) which can support organisations across sectors in navigating the changes from IR35 by providing teams with a robust status assessment tool and IR35 governance platform, complete with comprehensive status determination statements, contractor dispute resolution workflow and an audit trail of assessments.

*The Grant Thornton Business Outlook Tracker is a bi-monthly survey of mid-market businesses. Censuswide (on behalf of Grant Thornton UK LLP) surveyed 605 senior decision makers in UK mid-market businesses between 29 September 2021 – 12 October 2021. The UK mid-market is defined as companies with an average annual turnover between £50million - £500million.