Two in five businesses to hire more contractors following Budget, BDO warns of tax risks

Two in five businesses plan to hire more contract workers in response to Budget tax changes according to Binder Dijker Otte’s (BDO) latest survey, but the accountancy firm warned employers not to fall foul of off-payroll labour tax rules. 

In total, 43% of respondents to BDO’s survey of 500 mid-sized businesses said that they would look to hire more contract workers as a means of mitigating the rise in employer’s National Insurance Contributions (NICs) announced by the chancellor at the Autumn Budget.

However, BDO warned that unless they qualify as a ‘small business’ under the Companies Act, they will be subject to the tax rules for off-payroll labour which took effect from 6th April 2021 as an adjunct to the IR35 rules.

These rules were designed to ensure that where an individual works like an employee but provides services through a personal service company (PSC), they broadly pay the same tax and NIC as they would if they were a direct employee.

Until April 2021, the responsibility for compliance with the IR35 rules lay with the PSC.

From April 2021, the responsibility for determining whether the IR35 rules apply shifted to the ‘client’ or hiring organisation.

As the client, the hiring organisation is responsible for reviewing the individual’s engagement status and determining whether they should be classed as the organisation’s employees for tax purposes.

If it concludes that these rules do apply, then it will be liable, as the fee-payer, for secondary Class 1 NICs. It will also be responsible for deducting tax and NIC from the payments made to the PSC.