Insights

Although there were no updates on IR35 announced during the Spring Statement, HMRC has already warned of the impending changes to the current rules for private sector companies.  In a consultation document issued at the start of March, some of the actions that companies should take to prepare for the reforms were outlined.

These include:

• Identifying and reviewing "current engagements with intermediaries", including personal service companies (PSCs) and labour supply agencies;
• Implementing "comprehensive" processes to determine the employment status of contractors.

HMRC is consulting on how to finalise the new legislation that will effectively make businesses liable for the employment tax status of any private sector contractors who work through PSCs, starting from April 2020.

In the document, it was clear that although these changes won’t come into effect for a year, there is an expectation that businesses should already be operating as if they were currently legislated where they would apply.

So, if businesses are using contractors that operate through PSCs and that may be subject to IR35, they should be reviewing their processes and making the necessary payroll changes. Small businesses are currently exempt from the changes and the reforms are not expected to operate retrospectively.

What is IR35?

Tax legislation known as IR35 is designed to ensure that consultants who are operating through limited companies (also known as PSCs) do not have additional tax advantages over regular employees. They specifically require that employment taxes (national insurance contributions and the relevant rates of income tax) are paid by any professional services providers that would otherwise be regarded as an employee of the engaging business.

Currently, the onus is on contractors to be responsible for payment of employment taxes where IR35 applies, but after the new rules come into operation, it will be the engaging business that decides and is liable. In addition, the ‘engager’ will also be required to deduct PAYE and pay employers' NICs automatically.

If you are worried about IR35 or the new legislation please contact us directly to discuss.