The draft Finance Bill clauses issued for consultation on 11 July include legislation to extend the off-payroll working rules to the private sector from 6 April 2020. These changes will have significant implications for workers providing their services through personal service companies and also the end-user organisations that engage such workers.
End users will be required to determine whether the worker would have been an employee if directly engaged and hence the new rules apply to the services provided by the worker via his or her personal service company. This will be a significant additional administrative burden on the large and medium-sized businesses who will be required to operate the new rules. The current CEST (Check Employment Status for Tax) online tool would be improved before the proposed start date.
Small businesses exempt from IR35 rules
Small businesses will be outside of the new obligations and services supplied to such organisations will continue to be dealt with under the current IR35 rules with the worker and his or her personal service company effectively self-assessing whether the rules apply to that particular engagement.
The draft Finance Bill confirms that the definition of “small” is linked to the Companies Act 2006 definition.
This is where the business satisfies 2 or more of the following conditions:
- Annual turnover of £10.2 million or less
- Balance Sheet total of £5.1 million or less
- 50 employees or less
There will be an obligation to pass details of the status determination down the labour supply chain. The liability for tax and national insurance will be the responsibility of the entity paying the personal service company. However, if HMRC is unable to collect the tax from that entity, the liability will pass up the labour supply chain, thus encouraging those entities further up the supply chain to carry out due diligence.
Do you need help navigating the IR35 rules?
For more information about the IR35 rules please see our IR35 brochure.