IF your business utilises subcontractors who provide personal services through limited companies or other intermediaries then you may have to make substantial changes to comply with the new rules.
The government has reformed the off-payroll working rules which will apply to workers who supply their services to a client on a self-employed basis through an intermediary, such as a limited company.
These changes will come into effect from 6 April 2020. The intermediary is often known as a personal services company (PSC). HMRC has implemented these new rules to ensure that off-payroll workers' pay generally the same tax and national insurance contributions as an employee.
It is currently the responsibility of the PSC to consider employment status and account for PAYE/NICs where necessary. But from April 2020, this responsibility will be on the engager to determine whether IR35 applies. If it does apply then tax and NIC will need to be withheld from the payment to the PSC.
Although the changes do not come into effect until April 2020, it is advised that those affected should start preparing now. HMRC has released a list of guidance for how to prepare:
- Look at your current workforce (including those engaged through agencies and other intermediaries) to identify those individuals who are supplying their services through PSCs
- Determine if the off-payroll rules apply for any contracts that will extend beyond April 2020. You can use HMRC's Check Employment Status for Tax (CEST) service to do this. (https://www.gov.uk/guidance/check-employment-status-for-tax)
- Start talking to your contractors about whether the off-payroll rules apply to their role
- Put processes in place to determine if the off-payroll rules apply to future engagements. These might include who in your organisation should make a determination and how payments will be made to contractors within the off-payroll rules.
The new rules will not apply to small companies that have an annual turnover of less than £10.2m, a balance sheet total of less than £5.1m and fewer than 50 employees. The Government has estimated that, as a result of the exception for small businesses, 95 per cent of end users will not need to apply the reform.
If you would like to discuss the changes further then get in touch with David Owens at Hawsons Chartered Accountants, email email@example.com or call 01604 645600.