Change To IR35 Tax Obligations From April 2020 For Medium- And Large-Sized Companies


New rules to be introduced from April 2020 will make certain companies who engage workers through intermediaries (the "client") subject to:

assessing whether the workers should be treated as employees of the company; and operating employment tax (PAYE and NICs) in respect of payments made to the workers or their intermediary. Currently these obligations rest with the worker's intermediary and not with the client organisation.

The off-payroll worker tax rules (known as IR35) were introduced in 2000 to ensure that an individual working for an organisation through an intermediary (often that individual's personal services company ("PSC")) who would be an employee if engaged directly by the client is taxed like an employee. Under the rules, the employment tax liability is the responsibility of the PSC (or other intermediary) and not of the client. The difficulties of determining whether or not the individual providing their services should be taxed as an employee under the rules has been highlighted recently with a number of cases involving well-known British television and radio personalities which have come to different conclusions.

The rules were changed for individuals providing their services to public sector bodies in April 2017, so that the responsibility for determining the individual service provider's employment status and operating PAYE and NICs, if applicable, falls on the public sector body and not the PSC.

Draft legislation has been published in the Finance Bill 2020 which sets out changes to the rules to apply from April 2020 for individuals providing their services to medium- and large-sized organisations in the private sector. These changes are designed to increase compliance with the existing IR35 rules under which HMRC estimate that only one in ten workers currently operates the rules correctly. HMRC's assessment is that the new rules will generate an additional £3 billion of tax over the next four years.

While the new rules are not retrospective, they will apply to payments made from April next year under existing arrangements.

Determination of employment status - change in responsibility

The new rules will fundamentally change the existing IR35 rules for private sector clients by making it the responsibility of the client to determine the worker's employment status and, where applicable, operate the payment of the employment tax.

The new rules will not apply where the client organisation is "small". This is the case where...

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