Private Sector Contractors: IR35 Intermediaries Rules to Apply
New off-payroll IR35 rules applying to private sector businesses who use individual contractors operating through intermediaries are expected to come into force in 2020. The rules already apply to the public sector.
The IR35 regime now
The IR35 regime is an anti-tax avoidance law aimed at ‘deemed’ employees. The rules currently apply where an individual provides services through an intermediary (a personal services company – PSC ) in circumstances where the individual would, in fact, be an employee or director of the business if it were not for the use of a PSC.
Where the client of the PSC is a public sector body (PSB) the obligation to account for PAYE and NIC passes to the PSB. But in the private sector under the current rules (known as IR35) the PSC is responsible for operating PAYE and it is liable for any unpaid tax and penalties if PAYE has been incorrectly applied.
What’s new?
The rules which apply to a PSB are being extended to the private sector from 6 April 2020, the Government has announced. The rules will not apply to ‘small’ businesses though the proposals do not define what amounts to a small business.
Once in force, a business in the private sector will have to decide whether it is an employment relationship with a PSC , and if so the business (rather than the PSC ) will have to deduct PAYE and NI contributions from payments to the relevant PSC. Businesses may also be liable to pay apprenticeship levy costs.
What does this mean?
If you are a private business with contractual arrangements with one or more PSCs you will need to prepare for the new rules by reviewing your existing contracts and the employment status of your PSC contractors. You may also have to make appropriate amendments to your policies, payroll software, and so on.
The Government is expected to issue detailed guidance at some point, clarifying the definition of the small company exemption (though it’s thought it may well be companies with fewer than 50 employees in line with the Companies Act 2006) as well as rules to determine employment status for the purposes of these new rules in the private sector context. The Government says it will also give support to help companies implement the changes and to comply with the rules. We will cover further government guidance and supporting literature when they are published.
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