IR35 – Changes to off-payroll working from April 2020
In October 2018, the Chancellor delivered his Autumn Budget and confirmed that the proposed reform to the taxation of personal service companies (PSCs) in the private sector is to be implemented from 6 April 2020 for large and medium sized businesses.
Small Business Exemption
It has been decided that ‘small’ businesses will be excluded from these new rules. Where services are provided to small businesses by workers operating via intermediaries such as PSCs, the intermediary will continue to be required to ‘Self-Assess’ and account for tax and NICs where it is concluded that the rules do apply.
A small company is one which during the tax year, meets two or more of the following criteria:
- Turnover not exceeding £10.2million
- Balance sheet total not exceeding £5.1million
- Number of employees not exceeding 50
If a business reaches a point where more than one of its turnover, balance sheet or number of employees exceeds these thresholds, that business will no longer be exempt from the new rules from the following tax year.
What are the new rules?
The new rules will largely mirror those implemented from April 2017 in the public sector meaning that the responsibility for undertaking employment status assessments is now the responsibility of the entity using the services of the worker, whilst the responsibility for operating PAYE withholding will be that of the entity paying the PSC. The draft legislation also introduces the statutory concept of a “Status Determination Statement” or “SDS”, which clients will be required to provide directly to the worker. This SDS must include not only the decision of the client’s “deemed” employment status, but also their reasons for reaching this conclusion.
In situations where there are additional entities between the PSC/intermediary and the end-client, such as an employment agency, responsibility for calculating, deducting and paying tax on the worker’s remuneration defaults to the intermediary closest to the PSC.
What happens if the end client does not inform someone in the chain of their decision?
If the end client fails to inform the employment agency (or the intermediary closed to the PSC) as to what they have determined about the worker’s IR35 status to be, unless and until they pass on that information, the end-client will be responsible for operating PAYE, rather than the agency.