From April 2020 the rules for engaging individuals through personal service companies (PSCs) are changing. These individuals are described as “off payroll” and the responsibility for determining whether the off-payroll working rules apply will move to the organisation receiving an individual’s services. Read on to discover how you will be affected.
Effect on the Private Sector
Legislation has been in place since 2000 that seeks to prevent tax advantages from providing service through a limited company for those people who are contractors but who are, in effect, employees in all but name. These individuals are known as ‘disguised employees’.
In 2017, new rules were implemented in public sector organisations which meant that said organisations were responsible for deciding a contractor’s IR35 status; the decision was no longer that of the contractor in question.
If a contractor is deemed to be inside IR35 the organisation must deduct the employees NICs and income tax from their pay and pay employer’s NICs.
In the 2019 Budget, it was announced that the same rules would also come into force in the private sector from 6th April 2020. There will be significant penalties for making an incorrect statement. A consultation has taken place on how best to roll out the plans to avoid the problems that occurred during the public sector implementation. Despite much opposition amongst freelancers and the ‘off-payroll’ workforce, the Government has decided to forge ahead with the legislation regardless.
The changes will not affect small businesses who employ contractors, as it will still be the responsibility of the worker’s intermediary to decide their employment status. The legislation is however likely to significantly impact many contractors who work for large private sector companies via PSCs, though the actual effects are unclear at this time.
Companies will need to adhere to the new rules if they meet two or of the following criteria:
- Annual turnover greater than £10.2 million
- Balance sheet total greater than £5.1 million
- More than 50 employees
The HMRC Guidance document is available on the gov.uk website by following this link.
If you have any questions about your IR35 status and how you will be affected as a contractor, then please contact Salford chartered accountants, MCC, on 0161 707 1500 and we will be happy to help. For more information on our services for contractors, click here.