business

Region’s Mid-Market Businesses Fear HMRC Clamp Down On IR35

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 North West mid-market lacks confidence that their business will comply with the new rules governing the use of contractors by limited companies (IR35).

The survey found that nearly one in five (18%) of the North West mid-market lack confidence in their business’s compliance with IR35, which is in line with the national average of 19%.

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 just few months to go before the ‘light touch’ approach ends, 66% of respondents in North West were found to be confident in their business’s compliance, with only 20% responding that they were ‘very confident’.

Mike Herdman

Commenting on the results, Mike Herdman, Employer Solutions Tax Director at Grant Thornton in the North West, 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 process can be complex and time-consuming, so preparation is key, and it’s important that businesses of all sizes who still lack confidence in their compliance act soon.

“Businesses also need to be aware the ‘light touch’ approach to penalties does 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. 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.”

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 UK mid-sized businesses. Censuswide (on behalf of Grant Thornton UK LLP) surveyed 605 senior decision makers in UK mid-market businesses from 29 September 2021 - 12 October 2021. A mid-sized business is defined as £50m- £500million annual turnover. Of these, 102 are based in the North West. A mid-sized business is defined as £50m- £500m annual turnover.