Updates to IR35 are just around the corner and a lot is about to change.
We’re here to make sure your business doesn’t get caught with a hefty tax bill, so please read on for everything you need to know.
Personal service companies (PSC) have been popular with businesses and workers alike, because less tax and National Insurance Contributions (NIC) is paid by both parties compared to employing workers direct.
HMRC is aiming to level the playing field so that it receives the same tax compared to employing workers direct. After a delay due to Coronavirus, new rules will apply to IR35 from 6th April 2021. It will impact all medium and large private sector organisations (not small ones who’re exempt, nor public sector who already operate under the these rules).
It will mean that businesses impacted by the changes will be responsible for assessing the employment status of those who work for them via a PSC, rather than the other way around. If an employment relationship exists, then PAYE and NIC will need to be deducted from the payments made to the PSC.
Currently, the worker and the PSC are responsible for determining their own employment status. This means that if they get it wrong, then HMRC go to them for any underpaid tax or NIC. From 1st April, the responsibility is flipped and passes to the hirer.
Who are you calling small?
The IR35 changes don’t apply if the organisation using the services of a PSC is a small company – defined by meeting any two of these conditions:
Annual turnover is less than £10.2m.
Balance sheet total is less than £5.1m.
No more than 50 employees.
If you’re an unincorporated business the new rules don’t apply to you if your turnover is less than £10.2m – but they do apply if it is.
But what about the past?
Don’t worry! If a worker has a PSC and under the new rules they are deemed to be employed, HMRC isn’t going to delve into the past with a tax investigation or to claim arrears of underpaid tax.
Making the changes
As of 6th April 2021, you are responsible for deciding the employment status of the worker, not the worker or PSC. The important message to take from this is – if you pay a worker gross, and HMRC considers them to be employed then you will be responsible for any underpaid tax and NIC, not the worker.
You will need to review each contract with a worker or agency to determine whether an employed status exists. HMRC has a handy tool called Check Employment Status for Tax (CEST) which can help you with this task. You’ll need to keep a record of the reasons behind each decision.
IR35 is going to have an impact on many businesses and the clock is ticking, so it’s important that you’re prepared. If you’d like to talk through these new rules and what it could mean for your business, or need a helping hand through the process, please call us on 01782 279615 and we’ll work with you to make sure that you get it right.