HM Revenue & Customs (HMRC) has published new guidance on the expansion of the IR35 requirements to contractors working in the private sector.
IR35 governs the tax status of people working through personal service companies (PSCs) and until now required public sector employers to determine whether contractors working for them should be taxed as employees.
From April 2020, the same rules will apply to bodies in the private sector and HMRC has published the following tips to help employers prepare for the change.
1. Look at your current workforce (including those engaged through agencies and other intermediaries) to identify those individuals who are supplying their services through PSCs.
2. Determine if the off-payroll rules apply for any contracts that will extend beyond April 2020.
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.
Currently, contractors working for private sector clients are themselves responsible for making sure they pay tax on the correct basis.
This is a big change for business and yet, with less than 12 months to go, the new rules remain in draft form at the time of writing. A public consultation (closing 28 May 2019) will help in refining the rules but, regardless, the changes are inevitable and so employers are advised to consider their position as soon as possible as the onus will be on the ‘engager’ to ensure that taxes are collected correctly.
The good news for many is that there will be an exemption for “small” organisations and the draft legislation defines this as applying where at least two out of three conditions are satisfied. They are (1) the annual turnover is not more than £10.2 million; (2) the balance sheet total is not more than £5.1 million; and (3) the number of employees is not more than 50.
There have already been some high profile IR35 cases since the public sector changes were first introduced, not least with the BBC who paid many of its presenters and other individuals (in some cases, incorrectly) via a PSC. This has only served to highlight just how complicated the IR35 rules are and so early attention to this is recommended. As always, if you have any queries, I or another member of the team at Smailes Goldie will be happy to help.
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