New-IR35-Legislation-to-hit-the-Private-Sector

What is the Current Situation for Payments made to a Personal Service Company and IR35 legislation?

2nd March 2021

When an individual provides personal services to another business through their own Personal Service Company (PSC), it is currently their own responsibility to determine whether or not they should be treated for tax purposes as an employee. If they deemed themselves to be working like an employee, it would mean they would have to deduct PAYE and NIC on the payments made by their client to their PSC.

What is Changing in April 2021 for the Private Sector?

From this date it will now become the responsibility of the end client to make the determination of whether or not the payments made to the PSC should be treated as employment earnings. This will only apply to a medium or large private sector organisations, small private sector organisations will be exempt from these changes (see below).

These changes were originally meant to be introduced in April 2020, but have been pushed back a year due to the current pandemic.

What About Public Sector Organisations?

A similar change to ‘who assesses’ for IR35 status was introduced in April 2017 for public sector organisations. The public sector organisation is also responsible for ensuring that any PAYE and NIC due, is deducted at source before making payments to the PSC.

What the Changes Mean

If the individual provides services to an end user (who is not a small private sector organisation) through an intermediary such as a PSC, they should receive an ‘employment status determination’ from their client, which will advise them if they deem whether or not employment relationship is in place and why they have come to that conclusion.

If the worker disagrees with this they should provide details of why. The time limit for raising a disagreement is the date the final payment for services made to the worker. The end client will then have 45 days to respond.

What if there is an Agency?

If an agency is supplying the services of an individual to an end user then it will be the obligation of the agency to deduct to deduct PAYE and NIC from the payments made to the PSC.

In these instances the end user will still be the one responsible for issuing the employment status determination. This must go both to the agency and the worker so that they both have the opportunity to review what has been issued.

Small Business Exemption

The engager/end user will be exempt from applying these new rules, if they are deemed to be ‘small.’ In these instances the individual providing the services will remain responsible for determining if the ‘off payroll working rules’ apply to their PSC.

For these purposes ‘small’ follows the definition of the companies act, which means two out of the following three conditions need to apply:

  • Annual turnover does not exceed £10.2m
  • The balance sheet total is under £5.1m
  • It has no more than 50 employees on average during the year.

Conclusion

Please let us know if you have any questions concerning the above, there are a number of factors that HMRC determine whether or not an employment or business relationship is in place which we can advise you of.

If there is uncertainty, we can also arrange an IR35 contract review by a  specialist who will review the contract and arrangements in place between your PSC and your client to form an opinion and offer advice to ensure, where possible, you can continue to operate outside of IR35 legislation.

 

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