With the wheels of industry motoring again for 2020, a huge change affecting many is on the horizon, but it still appears many are not ready for the changes to off-payroll worker rules, which come into force in the spring.
The changes in April 2020 mean larger private sector companies, which use contract workers operating through their own personal service companies (PSC) will now become responsible for establishing the tax status of contracts agreed with those workers.
These reforms, based on those introduced in the public sector in April 2017, have been designed to put a stop to ‘disguised employment’ among contractors.
It means those engaging contractors have to assess whether the contract looks like employment rather than self-employment.
For instance, if it looks like employment then employment taxes will be due on the contract fee, paying short shrift to the PSC.
These rules will apply to all payments made after 5 April 2020, regardless of the contract date or when the work was performed.
Who will be affected by the IR35 changes?
It will affect all private sector engagers apart from small companies, as defined by the Companies Act 2006, and will also modify the existing public sector rules.
Those taking on the contractors, the engager, has now to assess the tax status of each contract and then has to issue a Status Determination Statement, giving specific reasons for their decision.
It means payments for contracts that would be classified as employment, were it not for the personal service company must now have PAYE and National Insurance contributions deducted and remitted to HMRC, along with employers’ NICs.
It is worth noting that these workers will be seen as ‘deemed’ workers for tax purposes only and will not necessarily have legal employment rights.
So how will it work?
We at AIT Accountants would say it is vital the companies affected should be well underway in putting processes in place, so that contracts are reviewed, documented, workers informed and payment processes are all in place.
HMRC have plenty of information about the subject, and the CEST (Check Employment Status for Tax) tool is being much used, but it is not fail-safe.
We at AIT Accountants are helping many of our clients get ready for the IR35 changes and we are happy to help should you wish to know more.
Please contact us today – we’re happy to help.