News
IR35 – are you ready? Many aren’t!
01 Feb 2021
With the focus on Covid-19 and Brexit, the rapidly approaching start of the new rules affecting those providing services through their own personal services companies has rather slipped under the radar. However, from 6 April 2021 the new rules kick in and there is a growing body of evidence that many of those affected are ill prepared. Others are adopting a blanket one-sized fits all approach which may address the short-term issue but may well store up longer term problems.
The off payroll working rules (the formal name for IR35) affect those working through a personal services company (“PSC”). If the rules apply because the relationship between the PSC and their customer is “employment like” then the income of the PSC is effectively taxed as if it were from a normal employment. For years the responsibility has been on the PSC to determine whether the rules apply or not and for them to implement them – and in truth many have ignored them or only paid lip service.
As a result, the Government decided to put the obligation fairly and squarely on those using the services of the PSC to decide whether there was an employment-like relationship. If the end user of the services decides there is such a relationship, then the payments to the PSC are subject to PAYE and NIC – and if the payments are made by a third party such as an agency, they will have the responsibility for deducting the tax.
The rules were originally due to come in to force in April last year but were delayed because of the Coronavirus outbreak. Many may be assuming there will be a further delay this year as the Pandemic continues to bite – at this stage there is NO suggestion this will be case and many stand to be caught out as a result. Others also mistakenly believe that, if the PSC’s turnover is below a certain level the rules do not affect them – in fact whether the rules apply is determined by the size of the end user business and not the PSC. Broadly, businesses with a turnover in excess of £10.2 million, with more than 50 employees and/or gross assets in excess of £5.1 million have the potential to be affected.
If, in HMRC’s view, the end user of a PSC’s services fails to take reasonable care in applying the rules then in a worst-case scenario the workers tax and NIC obligations have to be met by the payer. Failing to take these rules seriously could therefore prove to be a very expensive oversight!
There are a number of key questions that those potentially affected need to ask themselves:
End-users
If your business is the end user of a PSC’s services:
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Do you understand your responsibilities under the new rules?
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Have you got the systems in place to assess the status of your PSCs and take the appropriate steps based on the outcome?
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Are you aware of the (expensive) consequences if you fail to comply?
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Have you a process in place to communicate all of this to the PSCs?
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If you take a blanket approach (many have) and stop using PSCs altogether, are you going to lose out on the best talent to undertake the work you need?
PSCs
If you provide services through a personal services company:
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Have you assessed whether the new rules may impact on your PSC?
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Have the end users of your services discussed the implications of the new rules with you?
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Do you understand your rights if the end user determines you are in an employment-like relationship?
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What will be the financial impact on your business if the payments you receive are subject to PAYE and NIC?
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Does your PSC have the potential to be more of a hindrance than a help in future? If so, what are your options?
Here to help
If, having asked yourself these questions you believe you are not ready, the time to act is NOW! Email us – hello@wrpartners.co.uk so we can talk to you about the actions you need to take.
Finally, if you read this and think “I only use individual contractors, this doesn’t apply to me” then be warned – although the changes do not affect directly engaged non-PSC contractors and consultants, HMRC are still very interested to determine whether that individual is in fact an employee. If your sole trader consultant could be considered an employee you are still at risk from an HMRC challenge, IR35 changes or not.
Although the focus is on IR35, the potential for individual contractors to get wrapped up in any HMRC compliance review is very high – and potentially very expensive if you have not got your eye on the ball on that issue as well.
Visit our hub
To help you check on your preparations for the changes to IR35, we have created the IR35 hub where you will be able to find helpful resources and information.
Get in Touch
We love meeting new, exciting businesses. Get in touch with our team to see how we could enhance and protect your financial position.
Or if you’d prefer to speak to someone directly just give us a call on: 08000 664 664 or email: hello@wrpartners.co.uk.
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