If your business engages with contractors you may already be aware of the off-payroll working rules (often referred to as IR35). The rules apply to people working like employees but operating through a personal service company (PSC). Currently it is the PSC’s responsibility to determine whether the off-payroll working rules apply when engaged by a private sector company and to account for any PAYE and NICs due to HMRC.
From 6 April 2020, medium and large private sector firms (based on the Companies Act definition) will be required to assess the employment status of contractors operating through a PSC, shifting the responsibility for making this assessment from the contractor to the end user (your business). These rules have already been in place for the public sector since April 2017 however there are a few crucial differences.
For all PSCs your business uses you will be required to:
- Make a ‘status determination statement’ (SDS) for each contractor.
- Pass on the SDS to the contractor in writing (and the party you are contracting with if different e.g. an agency), along with the reasons for the assessment.
- Respond to any employment status disputes within 45 days.
- Where PSCs are deemed to fall within the off payroll working rules, the entity that pays the PSC (which could be your business or an agency) will be responsible for deducting income tax and NICs from payments made to them.
What should you do now?
It is important that you review all your engagements with your contractors now to avoid costly tax implications and potential penalties if you were to be found to be in contravention of the rules. Failure to comply with the rules may result in the worker’s tax and NICs liability becoming the responsibility of your business.
It is important to note that it is not just about what your contracts say but the working practices in place too. Every engagement must be considered on its own merits and a determination made accordingly.
What to do if your contractor is within the scope of IR35?
The simplest solution is to engage the individual as an employee. Many businesses may be reluctant to take this step, as there would be additional costs to consider such as pensions auto-enrolment and holiday pay. You can continue to engage with their PSC, but if your company is the entity paying the PSC, or via an agency, then you would be responsible for ensuring PAYE and NIC are deducted from the payments made to them via RTI.
How can Hazlewoods help?
We have a specialist employment taxes team who are able to provide advice on the tax implications of your contracts and working practices. We can also look at ways the engagement is carried out and whether there are ways to mitigate against a determination that the contract is within the IR35 rules.
If you are interested in knowing more about this, please contact Katie Williams who heads up our employment taxes team. We can also provide you with a copy of our factsheet on IR35 on request.
We are also running a seminar on Thursday 13 February on the new rules as well as some other topical employment tax updates. To find out more and register your interest click here.