Limited Company Contractors, Are You Ready for the Proposed Changes in IR35* Rules?

The change has already occurred in the Public Sector, what I'm talking about here is HMRC's proposals to extend it to the Private Sector - where most of you work.

From April 2020 the IR35 Rules for individuals engaged through personal service companies (Limited Company Contractors) are changing. The important change for you is that the responsibility for determining whether the off-payroll working rules (IR35) apply ('inside' or 'outside' of IR35) will move to the organisation receiving an individual's services (end user client) - it will no longer rest with you as Director of your PSC. However, further guidance on how you may contest this decision is expected. These proposals will not apply to clients who are 'small companies'.**

The following are extracts (in quotation marks) from a Recruitment and Employment Confederation (REC) guide (2nd edition March 2019)***:

'What's happening and when?

The IR35 rules in the private sector are changing. In brief the IR35 rules apply where an individual works through an intermediary, such as a personal services company, and provides their services to an end user client. If that intermediary did not exist, but the individual looked like an employee of the client for tax purposes, then that assignment is deemed to be ‘inside IR35' and the individual's pay should be subject to PAYE tax and national insurance. Employers' national insurance will also be due.

Due to non-compliance, the Government changed the application of the IR35 rules in the public sector in April 2017 – these are known as the ‘off-payroll rules'. The Government believes the time is now right to extend the off-payroll rules into the private sector and has published its consultation on the detail. That consultation closes on 28 May 2019 and draft legislation is expected in summer 2019. The off-payroll rules will then apply in the private sector from 6 April 2020.'

HMRC's website supplies lots of information in this regard. A good starting point may be here: HMRS

A lot of terms may be unfamiliar to you, so please seek advice from your insurers, legal advisers or accountant.

'Check employment status for tax tool (CEST)

The end user client will have to understand the IR35 rules and use an appropriate assessment tool to reach an accurate status decision. In 2017 the Government introduced CEST which is an online tool. CEST has come in for some criticism and the Government has committed to working with stakeholders to enhance the tool. REC will work with HMRC on this.'

CEST can be found on HMRC's website. As eluded to above, it may not be that conclusive - it depends on how you interpret the questions (i.e. you're making a subjective judgement, HMRC or the client may disagree).

NDT Resources Ltd has prepared this article. The purpose of which is to promote awareness of an important change to how tax status is to be arrived at - it may be taken out of your hands. You need to be prepared for these changes.

*The IR35 legislation was introduced by HMRC in April 2000 and was intended to combat tax avoidance. It affects all contractors who do not meet HMRC's definition of 'self-employment' and applies to anyone working via an intermediary such as a company or partnership.

**A company which meets two or more of the following criteria (a) annual turnover of not more than £10.2 million, (b) balance sheet total of not more than £5.1 million or (c) no more than 50 employees.

*** The information contained is provided as general background information and should not be taken as legal advice.

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