There’s no formal IR35 process in place here, six in 10 employers admit

Almost six in 10 medium-sized companies are operating without any IR35 off-payroll process in place, even though their business engages contractors, a survey shows.

Despite all outfits except small companies being required since April to test contractor status, 55% of mid-sized firm bosses say a formal process to track contractors is absent, says BDO.  

Potentially complacent due to HMRC’s ‘light-touch’ vow, the bosses said they would only “worry about IR35 once business is back to normal,” post-covid, the tax firm’s survey found.

'IR35 seen by some as no more important than home-working'

Contract reviewer Kate Cottrell, who specialises in IR35, isn’t surprised because in her experience, many firms still treat off-payroll compliance as a pandemic-related add-on.

“Lots of companies, notably larger ones, are only just adding this change [to IR35] onto the fact they have to change many other things [in wake of coronavirus], such as home-working.

“Another worrying aspect,” she says, “is that some small to medium businesses put efforts into doing something about the rules last year and with the delay, just stopped in their tracks.”

'Pushing IR35 to the back, due to covid'

A former tax inspector, Cottrell confirmed HMRC’s 12-month soft-landing is being “relied” upon, and that huge IR35 bills in the public sector “do not seem to have scared employers.”

But the multi-million pound IR35 liabilities for three central departments are “a clear sign of how much importance HMRC is placing on IR35 compliance,” says Qdos’s Seb Maley.

“With this in mind, firms mustn’t push IR35 to the back of their minds due to covid,” he advised yesterday after being presented BDO’s findings.

He added: “The pandemic hasn’t stopped the taxman from launching IR35 investigations and as we emerge from covid, they could well increase as the Treasury looks to raise revenue.”

'Red herring'

Also a contract reviewer, Mr Maley said he would be advising businesses that while the ‘soft-landing’ promise from HMRC seems generous, “in reality, it’s a red herring.”

“Tax liabilities will still stand and in IR35 cases, these are far greater than any penalty issued by HMRC,” he said, in line with an analysis for ContractorUK by accounting firm NumberMill.

Chris James, who directs accountancy services at JSA Accounting echoed: “It seems from the [BDO findings] that some businesses have heard about the ‘soft landing’ supposedly in place this year around the off-payroll rules. 

“However, they need to remember that this is believed to be a light-touch approach to penalties, not to the taxes that should have been deducted or found if a payment is classed as being for an ‘inside’ assignment.”

'Minimal HMRC leniency'

According to BDO’s John Chaplin, firms with no IR35 processes are likely to encounter “minimal leniency” from HMRC’s new unpaid tax taskforce, set for deployment this autumn.

But Bauer & Cottrell says some corporations just can’t afford to meet their obligations under the April rules and would rather risk it, hoping the Revenue doesn’t enquire.

“One [large company] has [even quietly] advised that their cashflow is at crisis point,” says the status advisory’s co-founder Ms Cottrell.

“They simply cannot afford to deal with [their IR35 responsibilities by paying for] proper advice. They have neither the time nor the energy to even do the basics such as using CEST tool – not that they trust or understand the free HMRC tool.”

'Highly signifcant volume of non-compliance'

She is not alone in hinting that the Revenue may not be helping stem the ‘highly significant volume of non-compliance at least at mid-sized firms,’ as JSA’s Mr James put it last night.

He suggested that, in light of the BDO findings, the department may even be partly to blame, saying: “HMRC should now reflect on whether the decision to press ahead with the reforms despite lockdown and other pressures on companies really did give business enough time to prepare.”