As you may know, from April next year, medium and large companies which engage individuals through personal service companies will take on responsibility for paying tax and National Insurance for some of those contractors. This will significantly increase the cost and administrative burden of engaging such contractors. Getting ready for this change will be a significant project; many of our clients are already reviewing their contractor base to assess their risk exposure.
A deeper dive
Currently, under tax legislation known as IR35, if a self-employed individual provides their services to an end-user through their own limited company, it is the responsibility of that company (rather than the end-user) to determine whether the contractor is a 'deemed employee' for tax purposes and to account to HMRC for income tax and NI contributions.
Now, from April 2020, private sector end-users will be responsible for assessing such contractors' tax status and operating PAYE for them. These rules will apply to all businesses except small companies (i.e. those which benefit from the small companies accounting regime).
These end-users will need to:
- determine whether they need to pay income tax and NI for each individual engaged through a personal service company;
- issue each such individual with a written statement setting out the determination of their status and the reasons;
- deduct income tax and NI contributions at source through PAYE; and
- set up a process by which the individual can challenge the end-user's determination of their status.
Preparing for these changes is a significant project, which will include:
- an audit of the business' current use of contractors and a risk assessment;
- assessing whether the terms on which the business currently engages those individuals permit deduction of tax and NI via PAYE and will otherwise be fit for purpose in the new regime;
- if not, planning when to terminate those contracts and creating updated contracts to be entered into with effect from 6 April 2020. End-users may wish to renegotiate fee rates to reflect the increased cost and administrative burden; and
- making the administrative arrangements for operating PAYE for those contractors.
All of this will take time, so affected businesses should start getting ready now.
Who will be affected?
- Medium and large businesses which engage contractors through personal service companies
- Recruitment and other businesses supply contractors through personal service companies
We can help by:
- Advising on tax and employment status;
- Reviewing contracts and developing an action plan for the business to ensure compliance with the new rules; and
- Drafting new contracts for contractors and advising on implementation.
We are happy to discuss fixed fees and other pricing options for this project, as we appreciate the value of certainty. If you would like to discuss your requirements, please contact Jane Amphlett.