Nearly half (45%) of UK businesses have yet to make any preparations for IR35 – one of the largest reforms to contractor tax law in history, research by Brookson Legal has revealed. With less than a year until the new off-payroll IR35 working rules come into force in April 2020, the research findings raise concerns that businesses are leaving it too late to get ready.
Brookson Legal recently published its IR35: A Ticking Timebomb report. Based on independent research on more than 500 medium and large-sized UK businesses that hire contractors, the research reveals the extent to which UK businesses have so far failed to take action – having not reviewed contracts, sought legal advice, or even spoken to their contractor workforce about the change.
When asked why, 45% are delaying because they are awaiting further guidance from HMRC, 32% are waiting until nearer the time to when IR35 comes into force and 28% are waiting on the results of the latest off-payroll consultation and publishing of the Finance Bill (the draft Finance Bill will be published Thursday 11 July with the government expected to introduce the Finance Bill following the next Budget). In addition, 24% are waiting on advice from their recruitment agency/partner and 16% don’t know what steps to take.
In contrast, 55% of businesses have already started to take steps to prepare for IR35 to ensure they are compliant and to understand their level of risk. 21% of businesses that have taken action now have done so to steal a march on their competitors – effectively turning IR35 to their competitive advantage. When asked why they have taken steps now rather than wait until closer to the April 2020 deadline, 42% said it was to avoid any last-minute panic or blanket ban assessments, 29% said it was so they don’t lose any contractors.
Joe Tully, Managing Director of Brookson Legal, said: “What we are seeing is a clear division between those businesses that are putting their IR35 house in order and those that are choosing to wait. Businesses need to be aware that they should not be waiting to tackle the IR35 challenge. The time to take the right action on IR35 is now. Unless businesses audit and understand their contractor workforce, they have no way of knowing the steps they need to take or how long it will take them to get ready – leaving them at risk of a last minute scramble to get ready, making the wrong decisions or not being ready at all.”
The research also found that, on average, businesses think it will take them about six months to get ready for IR35.
Joe Tully continues: “Businesses need to start preparing for IR35 or risk their contractors jumping ship to competitors that are taking a much more proactive approach. Contractors are looking for much-needed reassurance that the firms they contract with are taking their IR35 obligations seriously and seeking to minimise any impact on their livelihood and income. There is no need to delay.”
Amongst the 55% of UK businesses that have taken action, these are the steps they have taken:
Joe Tully concludes: “IR35 doesn’t have to be a huge hurdle but it is important that businesses take legal advice to ensure they are taking the right steps. From the research, 24% of those firms that have taken action with regards to IR35 have started taking contractors on as permanent staff. This may be both an un-needed and un-wanted step – leading to reduced flexibility, increased costs and contractors potentially out of pocket. A good audit and conversation with contractors would identify the preferred approach, and with the right contracts and working practices in place, contractors may well be able to remain outside of IR35.”
To find out more about the IR35 research amongst UK businesses and to download a copy of the Brookson Legal IR35: A Ticking Timebomb report, visit https://www.brooksonlegal.co.uk/guidance/ir35-a-ticking-timebomb/
Brookson Legal Services, the IR35 experts, is the only Solicitors Regulation Authority (SRA) regulated law firm that focuses on IR35.
Advising on IR35 since it was first introduced in 2000, Brookson Legal carries out thousands of employment status assessments each year. It works closely with hirers, recruiters, and contractors – providing impartial advice and IR35 expertise to help both the public and private sector understand its IR35 obligations, and mitigate risk, whilst maintaining all the benefits that a well-managed flexible workforce brings.