Friday, January 21, 2022

East Midlands businesses fear HMRC clamp down on 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 East Midlands mid-market is struggling to comply with the changes.

The survey found that a quarter (24%) of mid-market businesses in the East Midlands are 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 in the East Midlands (64%) were found to be confident in their business’s compliance. With only 28% responding that they were ‘very confident’.

Commenting on the results, Dave Hillan, partner and practice leader at Grant Thornton UK LLP in the Midlands, said: “Many firms in the East Midlands have been dealing with a roller coaster of changes, upheavals and challenges over the past 18 months. When combined with the fact that HMRC has been lenient on IR35 compliance penalties for nearly a year, it’s possible that many may have overlooked this issue.

“While the new IR35 rules can be difficult to navigate, this won’t be seen as a good excuse for any non-compliance, especially given that the previous 12-month delay to the reforms should have been sufficient time to prepare. For any business that isn’t sure if it’s in line with the new rules, now is the critical time to address this concern before HMRC begins its clamp down.

“Any businesses that are seen as being deliberately non-compliant will not only face significant consequences but it will also not prevent any uncollected PAYE and NICs from being due. Firms using agencies to source temporary resource should 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.”

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