IR35 tax rules for individuals working via their own companies for a medium or large business

The IR35 tax rules are set to be reformed from 6 April 2020 for individuals, commonly known as contractors, who provide their personal services through an ‘intermediary’ to a medium or large business. The most common structure is a worker providing their services through their own personal service company (PSC).

With effect from 6 April 2020, any medium or large business, or agency paying the PSC, must deduct PAYE and employee’s national insurance (NIC) from any payments as if the ‘deemed payment’ is a salary paid to an employee.  In addition the paying entity will also incur an employer’s NIC liability on this payment.  The net amount received by the PSC can be passed onto the individual without paying any further PAYE and NIC.  This will mean in practical terms that contractors will no longer benefit from the potential tax advantages of receiving the income via their company.  They will still have the costs of running the company and, although they will be taxed as an employee, they will not participate in any of the benefits that are normally available to employees.

It is up to the medium or large business to decide whether the new rules apply to their contractors. We are aware that some of the banks have already written to their contractors to offer them the choice of an employment contract or to operate through third party umbrella companies.  The umbrella companies will charge fees and deduct PAYE and NIC from the payments, leaving the contractor in an even worse position than being an employee.

We therefore urge all contractors to consider their position and to take advice as soon as possible.  You can check your employment status on the Gov.UK website using the following link:

https://www.gov.uk/guidance/check-employment-status-for-tax

Anyone looking to go into employment or use a third party umbrella company, as a result of the changes, will require careful tax planning to ensure that the existing company is closed down at the right time and in the right way to minimise any tax liabilities.  This is particularly important where there is cash in the company bank account.  Please contact us if you have any concerns or would like to discuss your options.

IR35 “Off-Payroll” rules to be extended to private sector

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