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HM Revenue & Customs (HMRC) has published new guidance on the expansion of the IR35 requirements to contractors working in the private sector.
IR35 governs the tax status of people working through personal service companies (PSCs) and until now required public sector employers to determine whether contractors working for them should be taxed as employees.
From April 2020, the same rules will apply to bodies in the private sector and HMRC has published the following tips to help employers prepare for the change.
- Look at your current workforce (including those engaged through agencies and other intermediaries) to identify those individuals who are supplying their services through PSCs.
- Determine if the off-payroll rules apply for any contracts that will extend beyond April 2020.
- Start talking to your contractors about whether the off-payroll rules apply to their role.
- Put processes in place to determine if the off-payroll rules apply to future engagements. These might include who in your organisation should make a determination and how payments will be made to contractors within the off-payroll rules.
The ongoing consultation on the IR35 Rules includes an exemption for small businesses as defined by the Companies Act 2006, but further clarity on this exemption is likely to be provided at a later date.
Currently, contractors working for private sector clients are themselves responsible for making sure they pay tax on the correct basis.