From April 2020, private sector businesses that engage individuals through personal service companies (PSCs) will face a change in legislation to mirror those in place for the public sector.

The responsibility for determining whether the Intermediaries Legislation (IR35) or ‘off-payroll working rules’ apply will move to the medium and large private sector companies who engage these workers. This includes responsibility for deducting the associated employment taxes and National Insurance Contributions (NICs).

These rules will also apply where the worker is engaged via a recruitment agency or other intermediary that supplies staff through a PSC. Recruiters could therefore be faced with large tax bills for incorrect IR35 decisions that have been made.

Background
The IR35 rules have been in place since 2000 to ensure fairness between individuals who work in a similar way. They are designed to make sure that an individual who works like an employee, but through their own limited company, pays around the same Income Tax and National Insurance contributions as other employees. IR35 does not apply in a number of situations, such as:

• Where the worker is genuinely self-employed or the agency, umbrella company or similar third party that supplies the worker directly employs them and deducts income tax and NICs.
• Where an organisation has fully contracted out services to a third party and the workers do not personally provide their services.
• To small companies, small groups of companies or certain small non-corporates are excluded.

Special rules also apply in the construction sector and where the worker/PSC or other intermediary is based abroad.

How to prepare

A limited company director is responsible for determining IR35 status. We recommend seeking a professional review of contracts and taking out tax investigation insurance just in case.

• Review your current workforce (including those engaged through agencies and other intermediaries) to identify those individuals who are supplying their services through PSCs.
• Determine if the off-payroll rules apply for any contracts that will extend beyond April 2020. You can use HMRC’s Check Employment Status for Tax service to do this.
• Communicate the IR35 rules to affected parties as soon as possible.
• Put processes in place to determine if the off-payroll rules apply to future engagement

How we can help

Shaw Gibbs HR Services team offer practical, straight talking
expert advice on a wide range of employee scenarios ranging from simpler issues
such as employment contracts and policies, to more complex issues such as
managing under performance, exits and larger change projects.