Monday 6 September 2021 12:01 am

More than half UK SMEs delay adopting IR35 tax reforms

More than half of the UK’s small and medium-sized enterprises (SMEs) have not put in formal processes to adhere to changes to the IR35 rules, according to a new survey.

A survey from advisory firm BDO found 55 per cent of SMEs using contract workers say they will worry about IR35 reforms when businesses return to a more normal footing post-Covid.

The IR35 rule changes came into effect five months ago, meaning all these firms are now susceptible to investigations from HM Revenue and Customs (HMRC).

HMRC has said there will be a so-called soft landing in the first year for those who do not comply with the new rules, but that a taskforce will soon be launched to clamp down on tax avoidance.

The IR35 changes force companies treat self-employed contractors as employees for tax purposes, without having to provide standard employment rights such as statutory sick, maternity and redundancy pay. 

John Chaplin, employment tax partner at BDO, said : “Businesses who do not comply will still need to pay tax and could face significant penalties. HMRC has shown that it will not turn a blind eye to non-compliance, so businesses who do not have a formal IR35 process in place should immediately rethink their affairs.

“At a time when ESG is becoming increasingly important for businesses, there is an expectation for decision makers to come forward and show that good governance and tax compliance is important to them.

“Failing to comply with IR35 certainly shows weak governance and can prove to be an expensive mistake. Unless a business can show that it has taken ‘reasonable care’ over its IR35 responsibilities, penalties can rack up pretty quickly.”

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