You will have seen reported in the press the increase in compliance obligations for individuals who supply their services through personal service companies (PSC’s). Legislation regarding this has been in existence for many years (IR35) but the tax liability fell on the PSC. In April 2017 new legislation came into force, extending the charge so that the tax liability fell on the End User if they were in the public sector. You may have heard of cases regarding for example BBC presenters.
From 5 April 2020, the same extended IR35 legislation will apply to End Users in the private sector (UNLESS THEY ARE CLASSIFIED AS SMALL) whereby the burden is now on the Engager/End User to assess the status of the PSC and collect and pay the tax.
The definition of “small” is that in the Companies Act 2006 whether the Engager/End user is a company or an unincorporated business. During a 12-month period a business is deemed to be small if it meets 2 or more of the following criteria:
- Turnover (Sales) – not more than £10.2 million;
- Balance Sheet total – not more than £5.1 million
- Number of employees – no more than 50.
There is no requirement to consider any connected or associated companies/businesses and each entity is looked at in isolation. It is understood that anti-avoidance legislation will be introduced to prevent businesses creating small Special Purpose Vehicles to avoid the new rules by deliberately being small.
The legislation and employment tests are quite complex and the potential penalties of failing to comply are quite large.
If your business is small, this new legislation will not apply to you and any PSCs you use as contractors/suppliers will continue to be subject to IR35 but in the PSC as before.
If you are not small, you should consider the impact on you of the extended IR35 rules well in advance of 5 April 2020 and talk to your PSCs if you have any. If you would like to speak to a member of our team regarding the impact of this legislation please contact us on 020 7330 0000.