2 December 2019
If you currently work ‘off-payroll’ via a limited or personal services company (PSC), then there are changes coming into effect that you will need to be aware of.
From 6 April 2020, the updated IR35 regulations aim to create fairness between those who are directly employed or via a PSC so that income tax and NIC payments are the same and remitted as required.
This won’t affect all contractors, or indeed all businesses as it is aimed at medium to large companies in the UK, but it will if you are given the status of ‘deemed employee’. The end client company will be responsible for assessing your employment status, which will decide if you should be treated as an employee or as self-employed for tax purposes. If it decided that you have an employment relationship with your client then they, or your third-party agency, will need to deduct income tax and NICs from your income to pay HMRC directly as per PAYE.
This is currently the worker and the PSCs responsibility but HMRC report that less than 10% complied with their responsibilities. These changes could affect up to 170,000 individuals who would be employed if engaged directly. The legislation is aimed at those who don’t comply with the existing rules, so if you already do (according to HMRC) there should be little impact.
The need-to-know facts
- If you work for small businesses, you won’t be affected – you can read more about how it effects end user businesses here.
- It will not apply to those who are, or are deemed to be, self-employed.
- The status will not be applied retrospectively so if you start paying employment taxes under IR35 for the first time in April, you will not be targeted for taxes in previous years.
- An organisation’s decision on whether you fall within the rules will not trigger an enquiry in to previous years either.
- Although the aim is not to stop anyone working via a PSC, it is worth considering if the taxation is of benefit to you.
What you need to know to prepare
- You can use HMRC’s Check Employment Status for Tax (CEST), which has recently been upsated, to see if the off-payroll working/IR35 rules will apply to you, or to any other individuals who supply their services via your PSC.
- You can also use our Net Pay Calculator to understand the additional costs of employment when tax and NICs are paid directly rather than via your PSC. You enter your pay rate and then it will work out all the taxes (deemed employment payment) that will be deducted to provide net pay.
- Your intermediary (recruitment agency, or client direct) will be responsible for paying the income tax and NI contributions. This deemed employment payment will need to be taken into consideration when paying corporation tax, any dividends to shareholders or operating the Construction Industry Scheme (CIS) regime.
- As the individual, you will have to report information about your engagements on your self-assessment tax return. Any deemed employment payment is treated as ‘any other employment income’. If the income is gained as a salary from your intermediary, then the intermediary will need to give you a P60 at the end of the tax year. This will include all the pay, tax and NIC figures needed to complete or be added to your self-assessment tax return under ‘employment’.