The rules for engaging with individuals via personal service companies are changing; more specifically, the legislation shifts the responsibility for applying the rules to the organisation receiving the individual’s services. These rules have applied for public sector bodies since April 2017 but, as anticipated, have now been extended to include medium and large private sector organisations including some charities.
If the rules apply, fees paid to persons engaged via a personal service company will be subject to tax and national insurance contributions.
Who do the rules apply to?
The rules already apply to public sector bodies but will also now apply to “non-small” companies, defined as those that meet at least 2 of the following conditions:
|Balance sheet total||£5.1m|
|Average number of employees||50|
There is also a simplified test for companies which must be applied where you have an annual turnover of more than £10.2m and are not:
- a company
- a limited liability partnership
- an unregistered company
- an overseas company
What you need to do if the rules apply to you
For every contract agreed with an agency or worker, you will need to decide their employment status (i.e. whether they are employed or self-employed). You are required to keep detailed records of the reasons for determining the person’s status and the fees paid to them and have processes in place for resolving disagreements arising from this determination. For all engagements where the rules are deemed to apply, you will need to deduct and pay Income Tax and National Insurance to HMRC.
These rules are expected to have a significant impact for the IT industry which has a particularly high proportion of contractor engagements compared with other sectors. With many IT projects being put on hold due to uncertainties over the Brexit position, this could put further pressures on an already stretched sector where there is a shortage of suitably skilled individuals.
How we can help
We have helped many businesses understand their potential exposure for these tax changes. We would suggest companies who think they may be affected should review the position with their contractors to determine if their business is IR35 ready. A typical review falls into four parts:
- An initial meeting to scope the size of the project
- A review of the data
- The provision of advice
- Implementation of the action plan
Smith & Williamson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.
The word partner is used to refer to a member of Smith & Williamson LLP.