There is a proposed introduction of ‘off-payroll’ to the private sector which comes into force in April 2020. The changes involved is the way that Contractors, operating via Personal Service Companies, more commonly known as Ltd companies, will be paid.
Previously, HMRC introduced IR35 tax legislation in April 2000 as a measure against tax avoidance by contractors providing their services to companies via an intermediary, such as a Ltd company. Without the intermediary, these workers would be an employee of the company in which they provide their service and would be within IR35. Contractors found to be ‘inside’ IR35 will be subject to additional tax and NI.
In the private sector, the contractors currently determine if their role are within IR35 or not.
From April 2020 it will become the responsibility of companies in the private sector to assess the employment status of contractors they appoint, either directly or via an intermediary.
Private sector companies will be legally required to ensure that contractors operating via a Personal Service Company pay the correct taxes, otherwise they become liable themselves for any unpaid tax. The responsibility for paying the tax and NI will move from the contractor to the company paying them.
Exception for Off Payroll
The exception to this will be for any company classified as a small organisation, the definition as per the Companies Act 2006 is:
- Net turnover less than £10.2m;
- Balance sheet totalling less than £5.1m;
- Less than 50 employees.
Contractors will need to make sure they do not fall within IR35 as it will be the responsibility of their client to determine their status.
How to check your employment status?
- Businesses and contractors using Personal Service Companies should start by using HMRC’s Check Employment Status Tool ‘CEST’
- The CEST results of the test are accepted by HMRC provided that the questions are answered as accurately as possible.
- A worker challenging the CEST result will need also to work through the CEST tool if they are challenging a company’s status determination statement.
- See Employment Status Tests for run down of the different tests and case law.
Many personal service company (PSCs) owners and their engagers need to plan ahead for off-payroll working before next April.