Vale & West Chartered Accountants Blog

Majority of firms not ready for IR35

Recent research suggests that almost three-quarters of firms in the UK are not ready for the changes to the IR35 off-payroll working rules, which will include the private and voluntary sectors from April next year.

According to the study, 74 per cent of the people responsible for IR35 preparation at their firm are not ready for the new rules, meaning they are at risk of potential rising costs and a significant future skills shortage.

The IR35 legislation changes will come into effect in April 2020 for medium and large-sized organisations in the private sector. The rules were brought in to tackle tax avoidance from contractors who pose as a limited ‘personal service company’ (PSC) to mask their employment.

IR35 has been in place for public sector organisations that contract suppliers since 2017 and since then, the number of off-payroll workers in the public sector, meaning those classified as outside IR35, has fallen by nine per cent.

Of the businesses that are aware of the upcoming changes, almost 70 per cent believe the biggest risks around IR35 are potential cost increases, while almost 60 per cent are concerned about losing key talent. Meanwhile, almost 50 per cent of those polled said it would be harder to engage non-permanent contractors after the changes.

Despite these fears, firms are not preparing for the changes and many private sector firms are not even sure what proportion of their temporary workers use PSCs, which is worrying.

As one commentator remarked, failure to correctly assess contractors could lead businesses to face backdated demands for unpaid PAYE, tax and NIC, fines for delays and late submissions, and reputational damage which could impact the ability to attract contractors and other temporary workforces, who provide invaluable flexible expertise.

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