Mid-market fears end to ‘light touch’ over IR35, Grant Thornton warns

Grant Thornton has revealed that with HMRC’s ‘light touch’ approach to IR35 compliance enforcement set to end in April 2022, the mid-market is “still struggling” to comply with the changes. Grant Thornton said its latest Business Outlook Tracker survey of 605 mid-sized businesses found 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. GT said 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 confirmed at the time it will take a “light touch approach” to penalties until April 2022. As such, with only a few months to go before the ‘light touch’ approach ends, the firm found less than three quarters of respondents (68%) were confident in their business’s compliance. With only 25% responding that they were “very confident”. The 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. Matt Parfitt, 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.” He added: “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.”

Mid-market fears end to ‘light touch’ over IR35, Grant Thornton warns

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

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