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PRIVATE SECTOR OFF PAYROLL WORKING FOR INTERMEDIARIES (IR35)
From 6 April 2020, medium and large-sized private sector clients will be responsible for deciding whether intermediaries working for them are caught under the ‘off payroll working’ IR35 rules. This includes some charities and third sector organisations. (If a worker provides services to a small client in the private sector, the worker’s intermediary will remain responsible for deciding the worker’s employment status and if the rules apply).
An intermediary will normally be a worker’s own personal service company, but could also be a partnership, a managed service company, or another person.
The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees.
Status Determination
If your intermediary provides services to a medium or large-sized private sector client, the worker should get an employment status determination from the client, as well as the reasons behind that determination, and will be able to dispute the determination given to them if they disagree with it.
If no employment status determination is received, this may be because you are providing services to a small client in the private sector.
If you do not receive a status determination from the client you, as the intermediary, should determine whether the off-payroll working rules apply. You can do this using the HMRC check employment status tool.
https://www.gov.uk/guidance/check-employment-status-for-tax
Disagree
If your worker disagrees with the determination, they will need to write to the client to give reasons why. This should include details of:
Copies of any records about disagreements should be kept.
The client will have 45 days from the date of receiving the worker’s disagreement to respond. During that time the client should continue to apply the rules in line with their original determination.
If the employment status determination has not changed, the client will have to tell the worker.
If the employment status determination has changed, the client will have to tell the worker and the intermediary.
Payment
If the off-payroll working rules apply to the worker, the income received for your worker’s services will have had tax and National Insurance contributions deducted from them before being paid, i.e.) the amounts are treated as employment income. This means that no further tax will be deducted or applied when the money is paid from the intermediary to the worker.
You can do this by paying it as either:
Corporation Tax will also not be due on the income if working through a personal service company.
If you wish to discuss this any further, please call the office on 01785 254550
The rules that apply to workers who provide their services to a public authority via their own limited company changed from 6th April 2017.
Previously the obligation was on the worker to decide whether a contract performed was caught by the ‘intermediaries legislation’ (known as IR35) however since the 6th April 2017 it is the responsibility of the public body or agency supplying the worker to the public body to decide if the ‘intermediaries legislation’ applies.
IR35 is tax legislation introduced to identify what is known as ‘disguised employees’, these are workers who would be considered employees of the client if it were not for the existence of their personal limited company. From the 6th April 2017 if a public sector client deems your contract to be caught by IR35 legislation then they are required to deduct PAYE tax and Class 1 National Insurance from your invoice before paying it. They are also required to pay Employers National Insurance over to HMRC.
The proposed changes to IR35 announced in the 2016 Budget will come into effect from April 2017 tadalafil tablets. ‘Public sector bodies and agencies will be responsible for operating the IR35 tax rules that apply to off payroll working in the public sector. The rules will remain unchanged in the private sector.’ Consultation on the new changes ran from 26th May 2016 – 18th August 2016 and responses to the consultation are currently being considered.
Where workers are engaged through an intermediary, (either their own personal service company – PSC, individual or partnership), the public sector body, agency or other third party engaging them will be liable to apply the IR35 intermediaries rules and pay any associated Income Tax and National Insurance if necessary. Taxes will be reported through the Real Time Information PAYE system.
To determine whether the intermediaries rules apply, HMRC has developed a new digital tool which should give a definitive HMRC view on whether the rules apply to PSC’s working in the public and private sector. The bases on which the rules are applied have not been amended.
There will be a statutory right to appeal where a PSC or engager disagrees with the determination of the new rules. They will be able to request a formal review of the decision and appeal that decision to the tribunal.
Full details and information on the consultation can be found here