This has and will be a very hot topic over the coming months with the April deadline fast approaching. The new “off-payroll” tax rules are coming in to effect across the private sector as of 6th April 2020. The revamp of the existing IR35 laws, which were introduced in 2000, ensuring that contractors not meeting HMRC’s definition of Self-Employed are not benefiting from tax breaks that are associated with contracting.
Since the Public Sector changes back in 2017, the rules require companies hiring contractors to determine whether they should be classed as being employees or as self-employed for tax purposes.
HMRC have put together a criteria to decide whether a contractor is in “deemed employment” or is self-employed. Part of the checklist includes whether only that particular person can fulfil the job, if the employer has some control over how the contractor does the job, and whether the company is under some obligation to offer the contractor work (and they are obliged to accept it).
Shift in Liability
If your contract is deemed to fall within IR35 then any fees paid to you, the contractor, are then deemed as salary. This salary is then subject to employee taxes – NIC’s and PAYE (Pay As You Earn). Under the new rules, it will be the responsibility of the hiring company (End Client) to pay those taxes and not the contractor’s Limited Company, as is the current position.
As an FYI it is worth noting that “small companies” who are defined as those with less than 50 staff, have a turnover of no more than £10.2 million and a balance sheet of no more than £5.1 million are exempt from the new off-payroll tax rules. Therefore, if your End Client falls into this criteria then it is business as usual and it is down to the end client to determine whether they are classed as a “Small Company”.
The new rules could prompt private sector companies to follow the trend set by many public sector organisations into either switch and utilise an Umbrella company (as working through one will effectively make them an employee) or they will blanket all contractors as inside of IR35 which could cause even more issues further down the line.
What Next.
For those already in a long-term assignment that takes them past April 2020 I would suggest that you get in touch with your end client as well as your agency. For those contractors that are Limited/Self-Employed, then time is running out and you do need to address this before the deadline day of April 6th.
If you have any questions or concerns then please do get in touch on 01252 863700 or email info@epayme.co.uk we will be more than happy to assist.