Disclaimer: what you’re about to read should come with a health warning! Tax is a tricky beast, so we’ve tried our best to make this as straight-talking as our usual updates…don’t say I didn’t warn you!
IR35 states that if you’re working with a self-employed individual in such a way that they’d usually be an employee of yours (were it not for the company under which they operate), then they should be paying PAYE and NICs.
From April 2020, if you pay the individual’s company (rather than the individual directly) for work they’ve done, you may be responsible for PAYE and NIC deductions in respect of their fees (and HMRC penalties if you get it wrong).
From April 2020, if you’re a medium or large company* you’ll need to:
• establish whether, if you disregard the company under which the individual operates, the individual would really be an employee of yours;
• notify the individual and any company supplying them such as a recruitment business of your decision as to their true employment status and your reasons for that decision;
• ensure each layer of the supply chain involved with that individual is aware of your decision as to their status and the reasons for it;
• be clear on your process for resolving a dispute with the individual in respect of their status;
• deduct PAYE and NICs (if you pay the individual through their company) bearing in mind you will be charged interest and penalties by HMRC for failure to do so.
At the moment, we’re waiting for the final draft of the legislation. In the meantime…
• audit your workforce and contracts to identify any individuals who are supplying services through their company;
• use HMRC’s Check Employment Status for Tax to identify the status of individuals you pay through their company;
• discuss with them the changes to the regime and your thoughts on their status;
• consider how you’re going to make the appropriate deductions to HMRC where necessary;
• consider your on-boarding process for suppliers and how you’re going to ensure that deductions are made as appropriate;
• update your consultancy agreements to ensure the appropriate provisions are incorporated to deal with these changes. Click here and we can help you with that!
Watch this space!
*P.s – if you’re wondering, medium and large businesses are those which satisfy two of the following: turnover of more than £10.2m / have a balance sheet of more than £5.1m / have more than 50 employees.