How confident are Yorkshire firms when it comes to IR35 compliance?

Yorkshire businesses are confident in their company’s compliance with IR35 legislation ahead of HMRC’s light touch approach to enforcement coming to an end in April 2022, according to a survey.

HMRC’s ‘light touch’ approach to IR35 compliance enforcement is set to end in April 2022.
HMRC’s ‘light touch’ approach to IR35 compliance enforcement is set to end in April 2022.

New research from business advisor Grant Thornton’s Business Outlook Tracker revealed that nationally mid-market firms are still struggling to comply with the new rules governing the use of contractors by limited companies.

The national survey of 605 mid-sized businesses found that nearly one in five, 19 per cent, are still not confident in their firm’s compliance with IR35.

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Bucking the national trend however, almost three quarters of Yorkshire business leaders, 74.5 per cent, said they are confident in their company’s compliance. Just over one fifth said they are ‘very confident’.

Rachel Engwell, Leeds-based Northern head of tax for Grant Thornton, 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.

“It’s good to see that Yorkshire businesses are generally confident about their compliance and have heeded earlier warnings.”

From April 6, 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 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.

The latest research follows an earlier edition of the Tracker in January which found that, nationally, over half of the businesses surveyed, 59 per cent, believed they were ready for the IR35 transition in April 2021. Over one-in-three, 38 per cent, were found to not be fully prepared for the changes.

Ms Engwell said: “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.

“Company leaders should be aware that the current ‘light-touch’ approach to penalties will not apply to those businesses 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.”

Grant Thornton has recently launched its Employment Status Intelligence Platform (ESIP), which can support organisations across sectors in navigating the changes from IR35 by providing status assessments.

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James Mitchinson