Scotland’s mid-market fears HMRC clamp down on IR35 compliance

Heather Smallwood, Tax Director at Grant Thornton UK LLP

WITH HMRC’s ‘light touch’ approach to IR35 compliance enforcement set to end in April 2022, new research from Grant Thornton UK LLP’s latest Business Outlook Tracker* finds that mid-market businesses in Scotland lack confidence that they will comply with IR35.  

The survey found that nearly half (44%) of Scotland’s mid-market lack confidence in their business’s compliance with IR35 – significantly higher than the national average of one in five (19%) businesses not feeling confident in their IR35 compliance.   

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. 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 has confirmed that it will take a light touch approach to penalties until April 2022. With just few months to go before the ‘light touch’ approach ends, only 40% of respondents in Scotland were found to be confident in their business’s compliance, and 18% said that they were ‘not very confident at all’ that their business will comply.  

Commenting on the results, Heather Smallwood, Tax Director at Grant Thornton UK LLP in Scotland, said: “Given the upheaval of the last 18 months and with HMRC’s year-long lenience on penalties related to IR35 compliance, this lack of confidence amongst Scottish mid-market businesses could be due to them overlooking the issue. We now urge companies to re-focus and carefully use their time and resource to implement what’s needed ahead of HMRC’s change of focus in April.  

“Businesses also need to aware the ‘light touch’ approach to penalties does 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. Firms using agencies to source temporary resource should 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.” 

The research follows the recent launch of Grant Thornton’s Employment Status Intelligence Platform (ESIP) which can support organisations across sectors in navigating the changes from IR35 by providing teams with a robust status assessment tool and IR35 governance platform, complete with comprehensive status determination statements, contractor dispute resolution workflow and an audit trail of assessments. 

The latest stories