A survey has revealed that more than half of the UK’s small and medium-sized enterprises haven’t introduced formal IR35 processes five months after a major rules shake up.

The research advisory firm BDO found that 55 per cent of firms with between 50 and 250 employees said they would worry about IR35 reforms when business returns to normal post-Covid.

Taking effect from April 2021, the IR35 rule changes mean that companies with more than 50 employees are responsible for judging whether or not a contractor is a so-called ‘disguised employee’. These contractors must be paid like employees, but they don’t receive many of the benefits that come with employment.

Taking into account the economic turbulence caused by the coronavirus pandemic, HMRC said that it would implement a ‘soft landing’ approach to the new rules in the first year. However, the tax authority is soon expected to launch a new task force to clamp down on this kind of tax avoidance.

For contractors, this means that employers that have not yet made an official IR35 judgement may soon find that there are big changes to their contract. They could find themselves paying more in income tax and National Insurance, but without statutory benefits like sick, maternity and redundancy pay.

Miles Grady, Director of Umbrella.co.uk, said: “It’s easy to see why many businesses didn’t see IR35 as a priority back in April. In fact, many firms are still dealing with the effects of the Coronavirus pandemic.

“There will come a time when every company needs to get serious on off-payroll working, or they will face significant penalties. Contractors should prepare for this, making sure they have a contingency plan in place in case they are negatively affected.”

For more information about IR35 and how you can plan for a negative outcome, speak to a member of the team today. Call: 0800 121 6513.