As laid out in our first blog, the IR35 tax legislation is expected to be updated from 6 April 2020. If you work with contractors who operate through an intermediary such as a limited company, otherwise known as a personal services company (PSC), then you must be aware of the impact this could have on your firm, clients and contractors from next year.
Once assessed, if there is a deemed employment relationship between your contractor and your client (as a medium or large organisation), then you as the recruiter will need to deduct PAYE income tax and employee NICs, and pay employer NICs. Currently this is the responsibility of the contractor and their PSC, however HMRC has reported that less than 10% comply with this requirement.
How you can prepare
Begin by assessing the size and scale of the impact on your firm, clients, and contractors. Remember, this only affects medium or large organisations, so if your clients fit the small-size organisation criteria (see our first blog) then they are exempt and the responsibility for tax payments remains with the PSC.
Start by reviewing your PSC contractors and their assignments. The priority will be on those:
- contractors that have contracts/assignments with end dates beyond 6 April 2020;
- contracts that you are negotiating to start or end beyond 6 April 2020; and
- clients who are likely to start or extend contracts beyond 6 April 2020.
When you have a list of those who match this, begin the education process internally and externally, consulting with your clients on their approach.
Once you’re aware of the contractors who could be potentially affected, you can check whether the off-payroll working/IR35 rules will apply to them by using the HMRC’s Check Employment Status for Tax (CEST). This is already available and gives a good idea of how HMRC would view an assignment. This is a BETA tool, and improvements are being developed and tested to ensure a full version is available by the end of this year in readiness for the changes in April.
UHY Hacker Young are recruitment sector specialists and provide expert advice on accounting, finance, taxation and business growth. We understand recruitment and can support you through the ever-changing landscape of this fast-paced industry. With IR35 changes around the corner we can help you build a robust system to tackle this challenge, provide payroll support and review your existing contracts with assistance from our network of other recruitment specialists.
In the coming weeks, we will share more insights on these changes including FAQs, choosing umbrella companies, and what financial impact this may have on your business. We will provide calculators to help understand the impact on your margin should a contractor be inside the scope of IR35 and also the impact on the net pay of the contractor. In the meantime, if you have any queries please contact Marie Pegram on 01462 687333 or by email firstname.lastname@example.org.
For more information on the key deadlines and guidance ahead of the changes being introduced on 6th April 2020 please download the fact sheet below: