New IR35 Rules – Time to Act
10 March 2020
From April 2020 HMRC are due to change the IR35 rules for individuals that contract through a Personal Service Company (PSC). These changes are likely to result in increased tax for workers and an administrative burden for the companies that engage them.
IR35 is the term used to refer to tax legislation designed to make sure that workers who provide their services through an intermediary, but would be an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance Contributions (NIC) as employees. An intermediary will usually be the worker’s own PSC.
Historically, where a worker was engaged via a PSC, the IR35 rules applied only to the PSC. However, from April 2020 every medium and large UK private sector business will become responsible for determining the tax status of contract workers engaged through a PSC.
In advance of these rule changes, private sector businesses should be acting as soon as possible to determine the tax status of workers engaged via a PSC and withhold tax and NIC from payments where relevant.
Workers deemed to be within the IR35 rules will, from April 2020, see their fees subject to tax and NIC deducted at source, rather than being paid gross. It is expected that businesses will err on the side of caution in the majority of instances and treat workers as caught by the new rules. The worker can appeal against an employment status determination if they disagree with the decision, but only for the engager to review and justify their original decision.
Although the Chancellor has announced a review of the new rules, a complete U-turn is unlikely and businesses should prepare for the worst.
For further information, please visit: https://www.gov.uk/topic/business-tax/ir35
