Three quarters of organisations not ready for IR35 rules

Nearly three-quarters of UK organisations are unprepared to implement IR35, according to a Twitter poll by MHR.

The off-payroll working rules that currently only apply to contractors of public sector organisations will extend in April 2020 to cover contractors of medium to large private organisations and NGOs.

Of the 1,228 respondents, 74% said they were not ready for the new rules.

Neil Tonks, legislation expert at MHR, the HR and payroll software firm, 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.”

After 6th April 2020, organisations now affected by IR35 will be responsible for deducting income tax and National Insurance contributions via PAYE.

“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,” Tonks added.

Calls for Delay

Perhaps because so many firms are unprepared for the extension – and the fact that so much confusion around the rules seemingly exist, there has been growing calls for the new IR35 rules to be postponed. The latest organisation to voice this is the Federation of Small Businesses (FSB). It has called on all major political parties to commit to delaying the expansion of IR35 which would otherwise “[make] the hiring of sole traders less appealing”.

The National Chairman of the FSB, Mike Cherry said: “Against such an uncertain backdrop, the self-employed certainly don’t need an IR35 rule change that makes hiring contractors less attractive.

“We’ve already heard noises from big corporates to indicate that – if this change does take effect in April as planned – they’ll pull the plug on sole traders. Common sense dictates that a delay to the April roll-out of these rules is now needed.”

This also comes on the heels of banks like Lloyds stating they would stop hiring contracts who operate under limited companies.

Losing clients?

As some contractors shift towards PAYE ahead of the April 2020 deadline, accountants are finding many of these contractor clients no longer requiring their services. While other contractors are looking to work for companies abroad to avoid the new rules.

In late October, HMRC issued a publication to help all affected parties to better understand the new IR35 rules and why they are being implemented. HMRC has stated it will provide one-to-one support for the 2,000 largest private employers and direct communication to 15,000 medium size firms. This will be complimented by workshops, roundtable, and enhanced online tools.