IR35 is very much in the news and changes are on the way. From 6th April 2020, new rules apply to ‘off-payroll’ working relationships, placing more tax and compliance burden on companies making payments to individuals via an ‘intermediary’.
HMRC is keen to clampdown on ‘disguised employment’ and ensure that any individual operating like an employee is taxed like an employee and not as a self-employed person. These rules are known sometimes as ‘IR35’.
Many individuals bill a ‘fee paying’ company for their services via intermediaries such as Personal Service Companies (PSC) and partnership structures. From next April, the ‘fee paying’ company is responsible for the tax compliance and administration which will include deducting employment taxes and employers’ NIC. Currently, the fee-paying company can make a payment to the intermediary with no requirement to account for NIC or income taxes.
The new rules will apply to medium and large companies in the private sector and to all public sector fee-paying companies (regardless of size). As a guide, a private company requiring an audit is large/medium and would be affected by the new rules.
The fee paying company will also need to send information about the payments to HMRC under Real Time Information (RTI) and ensure that is done within the correct timescales, formats and deadlines.
Where VAT has already been charged on an invoice, this needs to be adjusted for so that it is not charged or accounted for incorrectly.
Action to take now
The impact of these changes is likely to be significant and wide-reaching, affecting many businesses and companies who currently pay individuals in this way.
We are urging fee-paying companies to review the arrangements they have in place with workers and ensure they are prepared for the changes in April. Issues such as adequate software, an understanding of PAYE and NIC calculations and VAT should be considered. This will be high on HMRC‘s radar and getting it right from the start is essential.