Business RegulationTax

74% of organisations are not ready for new IR35 rules, research finds

Three-quarters of UK organisations are not ready for changes to off-payroll working rules, which are being extended to include the private and voluntary sectors in just six months’ time, according to HR and payroll software and service provider MHR.

IR35 is an anti-avoidance tax legislation designed to stop companies from using ‘disguised employment’ as a way of getting around their tax and national insurance obligations.

The poll of over 1228 people who are responsible for IR35 preparations at their respective company found that 74% are not ready for the new rules, leaving the business exposed to potential rising costs and a significant skills shortage in the future.

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From 6 April 2020, medium or large-sized businesses in the private sector and voluntary sector will be responsible for assessing whether contractors need to pay income tax and national insurance contributions. Previously, such checks have been carried out by contractors themselves.

The reformed rules – known as IR35 – have been in place for public sector organisations contracting workers supplied through their own personal service companies (PSCs) since 2017.

MHR said that during this time an analysis of ONS data has found the number of off-payroll workers in the public sector – those classified as outside IR35 – has dropped by 9%.

Where employees fall inside the new rules, businesses will be responsible for deducting income tax and National Insurance contributions (NICs) via PAYE and will be required to pay employer NICs.

Neil Tonks, legislation expert at MHR, said: “IR35 represents a significant change in the way organisations in the private sector employ and pay their contractors.

“Preparing for the change is no easy task with the process estimated to take three to four weeks to complete, so it is critical that companies don’t pay lip service to the new rules and treat IR35 assessments as an urgent priority to ensure they fully comply.”

He added: “Failure to correctly assess contractors could lead to backdated demands for unpaid PAYE, tax and NIC, and fines for delays and late submissions, not to mention reputational damage which could impact the ability to attract contractors and other temporary workforces, who provide invaluable flexible expertise.”

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