The IR35 rules are designed to discourage avoidance of payroll taxes by organisations who engage workers through personal service companies (PSC)s or other intermediaries rather than taking them on to the payroll.
The IR35 rules were altered from 6 April 2017 for public sector contracts and they will change again for large and medium sized employers in the private sector from 6 April 2020. From then the operation of the IR35 rules should be standardised for larger engagers across the public and private sectors.
If you provide services through your own PSC or partnership you should review the working relationships with your customers, particularly for contracts expected to extend beyond 6 April 2020.
First, check whether your customer will have to apply the revised IR35 rules from 6 April 2020. If your customer’s business is ‘small’ your relationship with that business will continue to be governed by the existing IR35 rules.
A ‘small’ business for this purpose is one which meets two or more of these criteria:
- annual turnover up to £10.2m;
- balance sheet total up to £5.1m; or
- no more than 50 employees.
When providing services to ‘small’ businesses, you must decide if your contracts are caught by IR35, and if they are, your PSC may need to account for PAYE on a deemed salary payment to you at the end of the tax year.
If your customer is not ‘small’ it is your customer who must decide whether your contract is caught by IR35 after 6 April 2020. If it is, your customer will deduct income tax and NIC under PAYE from your invoice before paying the net amount to your PSC. You will not become an employee of your customer but you will be taxed as if you were.
Would you like help and advice on this or any other issue?
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This note was published from our Summer 2019 Tax Briefing dated June 2019
Please be aware that the information above may have changed in subsequent months.
This note is written for the general interest of our clients and is not a substitute for consulting the relevant legislation or for taking professional advice.