On 06 April 2020 off-payroll working legislation comes into effect within the private sector, this will affect every company that makes payments to contractors as personal services companies (PSC). The end client will be responsible for assessing the contracts IR35 status taking this away from the contractor. There will be obligations on the end client to take ‘reasonable care’ in making assessments, they would need to consider and assess each assignment individually, NO ‘blanket assessments’.
Once the assessment has been made this has to be communicated through the supply chain and to the contractor. Failure to do this carries significant penalties for the end client as any unpaid tax liabilities can be passed back to them.
So, what does this mean to you?
In a nutshell, it is vital that IR35 assessments are correctly made in line with current legislative requirements complete with evidence of the determination. If your supply chain fails to agree and use this determination there is the possibility for unpaid taxes to be passed back to you. HMRC are ensuring whatever happens within the supply chain they will have the power to collect monies from someone. With the end client often being the largest party within the supply chain, they could end up meeting all the liabilities.
Key elements to remember:
- Make sure your IR35 assessments are accurate and clear, with evidence.
- Start assessing the impact on your business now, if you pay lots of PSCs you will potentially need to renegotiate contracts as if they fall inside IR35 you can’t just simply deduct the employment costs, you are not able to simply pass on the employment costs to the contractor.
- If a lot of your contractors are PSCs paid outside of IR35 this could lead to a 25-30% drop in their income, unless you are able to increase their rate of pay.
- If most of your contractors are paid inside IR35 with all deductions made, then there should be no or very little impact.
- Ensure that your preferred supplier list of umbrella companies is fully assessed/audited and where possible use those accredited by the FCSA and/or Professional Passport.
- Have a clear plan, from identifying contractors that could be affected to implementing a plan that will satisfy the new legislation and retain the contractor.
- Act now and don’t ‘bury you head in the sand’!