You are probably aware that HMRC are introducing new rules (commonly known as "IR35") for medium or large businesses engaging workers who contract via their own Personal Service Companies ("PSC's").
From April 2021 your business could be exposed to a significant increase in liability.
Additionally, failure to carry out an IR35 review in time for the new rules and act on the outcome could risk you being ruled non-compliant with the Corporate Criminal Offences Act.
HMRC have now published the results of a consultation and have provided clarification on how the new rules will work.
Who will be affected
- Medium or large businesses engaging workers who operate through a PSC, whether the PSC contracts directly with the client or via an intermediary in the labour supply chain.
- Any business of any size acting as an intermediary in a labour supply chain, especially if that business contracts directly with a PSC.
Historically, the responsibility for determining employment tax status and accounting for PAYE (tax and NIC) usually rested with the PSC themselves rather than the Client.
From April 2021, the Client for whom the individual performs the services (the "end user"), will be responsible for both determining the status of any individual engaged through a PSC and if applicable taking certain steps to ensure that PAYE is operated on payments made to the PSC. If engaging the worker via another intermediary (for example an agency) the end user must first decide on whether IR35 applies to the engagement, and then issue the determination to that agency. The Client must also deal with any challenges to the determination made by either the worker or the intermediary contracting directly with the PSC. Intermediaries of any size engaging a PSC may now be instructed to operate PAYE.
We strongly recommend that you review your contractor arrangements now due to the amount of preparation required. This is a complicated but necessary undertaking likely to impact on several areas of your business. For example, you will need to:
- Designate somebody internally to oversee IR35 both for the transition and on an ongoing basis.
- Identify all of the workers engaged directly and indirectly through a PSC.
- Decide which PSCs will fall within IR35 rules.
- Instigate a robust, consistent process of detecting and reviewing new engagements outside PAYE, and the issue and monitoring of any status determinations and challenges.
- When moving a PSC into IR35 consider the increased payroll costs of operating PAYE.
- Ensure contracts are in place for all directly engaged workers with PSC’s and that they are appropriate for the new IR35 regime.
You may want to consider a meeting to review your arrangements and ensure that your business is IR35 ready. A typical review falls into four parts:
- An initial meeting to scope the size of the project
- A review of the data
- The provision of advice
- Implementation of the action plan
To arrange a review meeting please speak with Alex Simpson.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.