NEWS

New Off-Payroll Tax Rules from April 2020

Already in place for the public sector since April 2017, the off-payroll legislation, commonly known as IR35, will come into force for the private sector from 6 April 2020.  However, the new rules will only apply to medium and large-sized business outside of the public sector and not to the self employed. 

Where the rules apply responsibility for operating the off-payroll rules will be transferred from the individual to the organisation, agency or third party engaging the worker who will need to deduct income tax and national insurance contributions (NICs) and pay the employer's NICs. 

Proposed reforms

Where the individual works for a medium or large sized engager outside of the public sector, through their own personal service company (PSC) and falls within these rules:

• The party paying the worker’s PSC (the fee-payer) is treated as an employer for the purposes of income tax and class 1 NICs
• The amount paid to the worker’s intermediary for the worker’s services is deemed to be a payment of employment income, or of earnings for class 1 (NICs) for that worker
• The party paying the worker’s intermediary (the fee-payer) is liable for secondary class 1 NICs and must deduct tax and NICs from the payments they make to the worker’s intermediary in respect of the services of the worker
• The person deemed to be the employer for tax purposes is obliged to remit payments to HMRC and to send HMRC information about the payments using real time information (RTI)

Small business exemption

Small businesses are identified by the audit threshold tests:

• Turnover – not more than £10.2 million
• Balance sheet total – not more than 5.1 million
• Number of employees – not more than 50

As for individuals, they must only consider whether they should assess where they are taking on contractors as part of their business. If services are performed in a personal capacity for an individual, this need not be considered.

Further guidance from HMRC on the new regulations is expected in the Autumn.

14/08/2019