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IR35: Off-payroll working rules extended

From 6th April 2020, the off-payroll working (IR35) rules that apply to the public sector are being extended to medium and large organisations within the private sector. The rules apply to organisations who pay for services to be provided by a personal service company.

 

What is a personal service company?

A personal service company is typically a Limited Company with a sole director, which carries out work for a small number of clients. Many organisations engage consultants or contractors through this type of arrangement. Through IR35 legislation, HMRC are now clamping down on this practice if it is specifically used as a tax-avoidance measure.

 

What new rules are coming into force?

From 6th April 2020, the onus will now be on the end client to work out whether the IR35 rules apply. They must determine whether  the worker engaged through the personal service company should actually be treated as an employee. If this is the case, then they will need to deduct tax and National Insurance from payments made to the worker’s personal service company.

 

Who does this apply to?

These IR35 procedures already apply to public sector organisations, but from 6th April they will also apply to all medium and large organisations within the private sector. To be classed as a medium or large organisation, two of the following conditions must apply:

  • turnover of more than £10.2 million;
  • balance sheet total of more than £5.1 million;
  • more than 50 employees.

 

How can you prepare for these changes?

  1. Look at your current workforce to identify those individuals who are supplying their services through personal service companies.
  2. Determine whether the off-payroll rules will apply for any contracts that extend beyond 6 April 2020
  3. Start talking to contractors about whether the off-payroll rules apply to their role.
  4. Put processes in place to determine if the off-payroll working rules will apply to future engagements.

 

If you are concerned about the implications of IR35 for yourself or your organisation, speak to a member of our team to find out what the changes mean for you.