Posted by James Pearson on 23 May 2019
IR35 Changes Loom for the Private Sector
On 6 April 2017, changes to the way that the taxation of workers’ services provided through intermediaries was implemented has had a huge impact for workers in the Public Sector. The Government now intends to roll out similar changes for the Private Sector, with effect from 6 April 2020.
Prior to 6 April 2017, if a worker’s services were provided to a client through an intermediary (or series of intermediaries) the decision as to whether a worker should be treated as an employee of the client (still widely known as “applying IR35”) would be determined by the intermediary.
This meant that a worker’s personal service company (PSC) would determine whether IR35 applied to a contract for supplying the worker’s services to a client. The PSC would also be responsible for applying PAYE to deduct and pay to HMRC the necessary income tax and NICs (National Insurance Contributions) where required. Unfortunately this system has been abused by many workers, and HMRC have had limited success at challenging PSCs through Tribunals.
For workers in the public sector the new legislation moved the responsibility for deciding whether the worker should be treated as an employee up to the final client, also moving responsibility for operating PAYE up to the intermediary directly above the PSC in the chain. In theory, this should mean that the system works more effectively as the ultimate hirer has responsibility, and the introduction of the revised rules has indeed changed the reporting of these contracts and has led to a fundamental change in the way public sector engagements have been dealt with – just not quite the intended outcome.
Initially, many public authorities made a blanket assumption that IR35 would apply to all workers, meaning that PAYE would need to be deducted by the entity above the PSC in the hiring chain on all engagements. However, it was soon made clear that this blanket position would not be legally enforceable, and that a contract-by-contract decision would need to be made.
In many cases the additional time and resources that this would need was deemed too high by the public authority, which led to another blanket position – public authorities simply refused to engage workers via a PSC, but still refused to employ the workers directly! Where this is the result workers are left with no choice but to use an agency or an umbrella company (incurring additional costs) or they will be unable to work in the public sector.
If similar rules are brought in for the private sector then the engagement of workers through PSCs could be made impossible for all workers, without providing their services through an agency or an umbrella company. It seems unjust that the millions of workers correctly operating a PSC and paying the required tax should be forced to incur higher costs as a result of a few individuals abusing the system.
Although HMRC is carrying out a consultation on the implementation of these rules, the fact that they have already published guidance on how to prepare for the changes appears to indicate that this is a done deal.
If you are a worker providing your services through an intermediary company, or if your business is engaging workers through a PSC, then you need to be aware of the coming changes and your responsibilities from 6 April 2020.
If you would like any advice regarding the IR35 Changes in the Private Sector or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or email@example.com
- Property Partnership Incorporation and SDLT
- Non-Resident Landlords – UK Tax Update
- Tax Relief For Residential Mortgages
- Top 10 Expat Tax Tips for Individuals Moving to the UK
- Overseas Pension Changes 6 April 2017