Contractors operating through your own Personal Service Companies (PSC’s), and all “non-small” corporate Customers who engage such PSC’s, please all take heed.
“IR35” is the name given to the longstanding tax law which seeks to identify where apparently “business-to-business” arrangements are really only disguised employments. It then tries to ensure that the appropriate amount of PAYE and NIC is duly accounted for. The timing and cost of that PAYE and NI, to the parties affected, are very unwelcome.
From April 2020, which is barely 7 months away, the responsibility to police and to apply the IR35 rules, will shift from PSC’s and on to their non-small Customers. Those non-small Customers will then have to assess if they need to withhold PAYE and NI from what they pay to the PSC’s for their services.
Non-small Customers, for this purpose, are companies who are either medium-sized or large, meaning they breach two out of the following three size limits:
- turnover of more than £10.2m
- net assets of more than £5.1m
- employees of more than 50
While some PSC’s might be relieved that the immediate tax risk and responsibility of IR35 adjustments are moved from them and on to their Customer(s), instead;
(i) you will still be responsible for potential IR35 exposures in relation to business done with, and payments received from, corporate Customers who are “small” (ie those where at least two of the size limits above are not breached); and
(ii) you will still want to continue to be paid gross on invoice by the non-small Customers!
As a result of (ii) immediately above, we expect PSC’s to want to be able to reassure their non-small Customers, in advance, that IR35 does not apply to them – withholdings of PAYE and NI from payments, by cautious or sceptical Customers could be very serious from a cashflow perspective.
At the same time, the non-small Customers engaging PSC’s may well want to obtain their own comfort about whether IR35 does or does not apply to the commercial relationship(s) they have with their PSC contractors. They otherwise risk accruing tax, interest and penalty exposures from all gross payments (unsafely) made after March 2020.
Everyone involved will want to get this right, from the start.
Harold Sharp are taking steps to ensure that all our affected clients are ready for the new rules. We are embarking upon a programme over Autumn and Winter to try and make that so.
We will be in touch with you very shortly if we believe that you might be one of those affected parties (whether PSC or non-small corporate Customer) but do please get in touch with your relationship principal here or with Tax Partner, Chris Barrington, anyway, to help us progress this for your safety.