Earlier in 2018 the government consulted on whether to alter the so called ‘IR35 rules, in effect whether to transfer the IR35 obligations from the hired Personal Service Company (PSC) to the hirer of the service.
These extended rules were first introduced in April 2017, though at that time the changes applied only to hirers in the Public Sector. However the latest Budget 2018 documentation confirms that the new rules will be extended to the Private Sector, from April 2020.
Make no mistake this is a very significant switch in responsibility. Whilst the latest information suggests that the precise nature of the changes will themselves be subject to consultation (including perhaps exclusion of ‘small businesses’ from applying the new rules), at this stage it is fair to assume the new Private Sector obligations will mirror the Public Sector equivalent. This will mean:
- The body hiring the PSC and worker has to make a decision whether the particular contract is ‘caught’ within IR35. In short, the hirer must decide would the worker be their employee if the PSC had not been used. Employment status is of course a very complex employment case law test, which requires a full understanding of how the contract will operate practically (simply agreeing robust written terms will not be enough in itself).
- If the contract is caught, the body paying the PSC must deduct and account for PAYE and NIC before it pays the PSC. If the hirer pays though an intermediary agency or employment business etc., the hirer must inform the intermediary agency of the PAYE/NIC obligation.
- Apart from the extra cost to the hirer (e.g. the employer’s NIC cost) the practicalities of deducting PAYE/NIC at the same time as paying a limited company, which may have other obligations e.g. VAT payment, may mean that specialist software is needed.
What can be done?
We admit there is unlikely to be a ‘one size fits all’ solution that we can dust off the shelf. However the announced timescale and promised HMRC guidance should ensure that, with very careful planning and a flexible approach, any increases in outgoings can be managed.
Please contact ET4B if you would like to discuss this further.