IR35 is tax legislation which was introduced to address a particular kind of tax avoidance – individuals might try to avoid paying income tax and national insurance by supplying their services through a personal service company (a PSC) and paying themselves dividends rather than a salary – in reality, the individuals involved may work in a very similar way to any other employees.

The Government has published draft legislation which means that, with effect from April 2020 , medium and large companies in the private sector which contract with PSC’s will be directly responsible for determining the appropriate tax regime to apply to the arrangement, and ultimately, ensure  income tax and national insurance are properly categorised and accounted for through PAYE.

Liability for determining the worker’s status and accounting for PAYE and NI appropriately will likely fall upon your business from April 2020if you engage individuals to provide services to your business through a PSC, or if you provide staff to others through PSC’s.

What should businesses be doing now?

The starting point is to carefully consider the relationship that you have with any self-employed consultants or contractors. The contractual arrangements that are in place will be a helpful starting point, but the practical reality of the arrangement will also need to be considered closely.

  1. Look at your current workforce (including those engaged through agencies and other intermediaries) to identify those individuals who are supplying their services through personal service companies.

2.  Determine if the off-payroll rules apply for any contracts that will extend beyond April 2020. You can use HMRC’s checking service to do this.

3.  Start talking to your contractors about whether the off-payroll rules apply to their role.

4.  Put processes in place to determine if the off-payroll rules apply to future engagements. These might include who in your organisation should make a determination and how payments will be made to contractors within the off-payroll rules.

The HMRC have provided a helpful “Employment Status for Tax” checker, can be accessed here.

Any employers potentially affected by the IR35 tax changes should get tax advice as soon as possible to have a clear understanding of the liabilities that may arise.

 

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