By Kim Parry
CFW Chartered Accountants and Business Advisers
FROM 6 April 2020, new rules apply making sure individuals working like employees but through their own personal service company (PSC) pay the same tax and National Insurance as employees.
The new rules shift responsibility to the organisation receiving the service to determine whether new off-payroll working rules apply. The fee-payer is responsible for deducting tax and National Insurance through PAYE.
If you're a small, private sector organisation you can breathe a sigh of relief. New rules only apply to large and medium-size businesses. To qualify as small, your business turnover must be under £10.2m, have a balance sheet of less than £5.1m and fewer than 50 employees (or a combination of the two). And if you qualify as a small organisation, responsibility for paying tax and assessing the rules falls back on the individual.
For large and medium-size businesses, new rules bring an administrative burden and a cost; assessing individuals on a case-by-case basis, running an off-payroll scheme and paying Employers' National Insurance. Going forward, some organisations may simply decide not to deal with PSCs.
HMRC has an online tool called Check Employment Status for Tax (CEST) which assesses whether individuals are determined as employed or self-employed for tax purposes and assesses whether off-payroll working (IR35) rules apply. HMRC will stand by this decision as long as it truly reflects actual working practices. If you are large and medium-size business, take immediate action and review current engagements.
Unfortunately, if you're an individual providing services, you don't get a say in the CEST process and must wait to hear from the business, which may determine whether you want to continue the contract or not. To prove you're in business on your own account and are not an employee, follow these top tips:
- Show you can delegate in your role
- Try to work with multiple clients
- Demonstrate you can send someone else in your place
- Have your own marketing materials - such as a website and business cards
- Not naming your company in your name can make it more distinct from you
The sting in the tail is that if you are an individual and taxed as an employee, you won't get any employment rights or benefits such as holiday pay, sick pay or pension. You may need to assess whether keeping their current personal service company is worthwhile.
To find out more about the new rules or for help in understanding how this may impact you email email@example.com or drop into our Kettering offices and make an appointment. Contact CFW Accountants on 01536 713555 for an initial, informal discussion or visit www.cfwaccountants.co.uk