Off-payroll (IR35) working
IR35 is the legislation that seeks to determine tax status for individuals working through a limited company, or a PSC as commonly known.
In the Public Sector Limited company contractors have been responsible for determining their own tax status and paying the relevant tax accordingly up until April 2017, where that responsibility then fell to the end client.
As of April 2020, these rules will be rolled out to the Private Sector, where the responsibility for operating the Off-Payroll legislation will sit on the organisation, agency, or other third parties engaging the worker. It will affect all payments made on or after 6th April 2020 to limited companies.
What is happening?
- The HRMC have committed to moving forward with rolling out the reforms as of April 2020 for the Private Sector. Associates will no longer be able to determine their own IR35 status if working with medium and large companies. The end client in the supply chain will be responsible for determining an associate’s IR35 status. This means our clients will have to bear this responsibility and we will be working with them to support them throughout these changes
- Small companies are exempt from having to comply with these regulations. The HMRC have published their intention to define small companies as:
- Annual turnover not more than £10.2m
- Balance sheet not more than £5.1m
- Not more than 50 employees
- If an Associate provides services to a small company (defined by meeting two of the above criteria), that company will be exempt from these reforms and the associate will remain responsible for determining their IR35 status
- The end client will be responsible in cascading the status determination to the Associate and across the entire supply chain
- There will be an opportunity for an Associate to dispute a status determination
- Where we have placed the associate, Huntswood will be responsible for making the appropriate deductions of PAYE and NI if the associate is deemed to be “inside “IR35. We will be sharing details of what this means as we get nearer to April 2020
- The HMRC are referring all status determinations should be made with reasonable care and transparency and have committed to improving their on-line 'Check Employment Status for Tax' tool known as CEST which can determine whether the role you do is inside or outside IR35
- Associates working through an Umbrella company are unaffected by these changes
Why is this happening?
The HMRC have introduced this legislation to:
Improve compliance: The change is aimed at improving compliance, in relation to the payment of tax and national insurance for those working through Personal Service Companies. Currently, the government believe that non-compliance is widespread with only 10% of individuals who should be inside IR35 paying the correct levels of tax and National Insurance.
Align industries and sectors: As the government believe the Public Sector IR35 reforms have been a success they feel it necessary to align it to the Private Sector. It is believed the changes in the Public Sector have seen an extra £550M in extra National Insurance and tax payments.
What happens next?
Huntswood will be working with its clients to agree the status determination of all of our Associates. We will be also talking to our Associate population, by email and face to face about what these changes mean for them and the options available to them.
In the meantime, if you have any questions please don’t hesitate to contact us on firstname.lastname@example.org