IR35 Contractors And New Tax Rules

IR35 Contractors And New Tax Rules

New rules come into force for IR35 contractors working in the private sector from April 2020 and draft legislation has just been released. The new ‘off payroll’ rules will place the onus of checking the IR35 status of contractors on the organisation or the company engaging the contractor.

If the engager believes the contractor to be within IR35, they must deduct employee’s NIC and income tax from the contractor’s pay, as well as paying employer’s NIC. The rules will affect certain businesses (subject to size) who hire contractors or workers through personal service companies (PSCs). The PSCs will have a right of appeal to the engager if they disagree with the decision.

Large and medium sized businesses will have to comply with the new rules. Small businesses remain outside of the rules. A small business is one that meets two of the following criteria:

1. Turnover Not more than £10.2 million

2. Balance sheet total Not more than £5.1 million

3. Number of employees Not more than 50

Subsidiaries cannot qualify as small if they are part of a group.

If you think your organisation is an engager caught under the new rules, you will need to look carefully at all contractors where they are operating through a PSC and bring them within your payroll if necessary. In these cases and for any other ‘off payroll’ contractors, you should consider the terms of the engagement contract. If, following the review, the terms are more akin to those applicable to an employee then the contactor may need to be taxed through the payroll. We can help you navigate this complicated area and give you peace of mind.

The legislation is under consultation but its main objective, to bring PSCs within payroll reporting for certain companies, will remain.

If you would like further advice on this area please do not hesitate to get in touch.