Off-Payroll Working / Changes to the IR35 Rules
If you are the owner of a personal services company, you may have heard about proposed changes in the tax rules which are going to take effect in April 2020.
You may also have heard that the changes do not apply to small companies (broadly, annual turnover of no more than £10.2 million, balance sheet total no more than £5.1 million, no more than 50 employees).
Have you gained the impression that, as yours is a small company, you are not affected by these changes? If so, I’m afraid you would be wrong.
What will change?
Currently you, the business owner, decide whether the services you provide are on a genuine supplier-customer basis or whether they fall foul of IR35 and are deemed to be employment, and taxed accordingly.
Under the new rules, the onus for that decision moves to your customer or agent if your services are provided via an agency.
They must produce a Status Determination Statement and if they consider that your status is that of an employee rather than a supplier, then they will deduct Income Tax and National Insurance from the payments they make to you.
Your customer must also pay secondary (employers’) National Insurance, so this is likely to affect the amount they are willing to pay for your services.
But surely this won’t apply to small companies?
Reference to small companies being outside the scope have proved misleading. This exemption applies to the end customer or agency, not the personal service company. So it is quite likely that your customer or agency will be a medium or large company and will therefore have to apply these rules.
The rules are already in place for public sector organisations, no matter what size.
What happens next?
Putting these rules into practice in the public sector has not been plain-sailing, and the Chartered Institute of Taxation has set out a number of concerns in a response to the draft legislation. In particular determining employment status can often be a grey area.
We don’t know how those concerns will be acted on so for now it is a case of “watch this space”. However if the rules are implemented as planned, this could affect any contracts which extend beyond April 2020.
So you should raise this with your customer or agent at an early stage, and speak to your accountant for further advice.
