IR35 - The impact to individuals providing services via Personal Service Companies

The Government has confirmed that it intends to reform the off-payroll working rules (commonly known as IR35) from 6 April 2020. This change impacts an estimated 170,000 individuals who supply their services through an intermediary, such as a personal service company (PSC), and who would be deemed employed if engaged directly. 

The impact of these changes should not be underestimated and sufficient preparation will be crucial.

How will this proposed change impact the supplier of these services in the private sector?

The reform will mean that the right to decide whether the off-payroll legislation applies to an engagement will be removed from the contractor and will now rest with the end user, where they work with a medium or large business.

There will be an obligation on the end user to communicate their status decision and their reasons for that decision to the contractor.

It has also been confirmed that the end user of the services will be required to set up a status disagreement process and respond to representations made by off-payroll workers within 45 days of receipt.

However, it is important to note that HMRC will not be involved in this appeal process in anyway and it is ultimately, the end user who will make the determination. Should HMRC disagree with the determination, it is the end user who would be responsible for any loss of tax or National Insurance Contributions. 

In marginal, cases they are likely to be cautious in their approach. Therefore, even though historically IR35 has not been in point, there is no guarantee that it will not apply going forward.

What should individuals be doing now?

If you are providing your services through an intermediary, such as a PSC, you need to understand whether your engagement is likely to fall with the new rules. 

Don’t underestimate the time it may take to correctly establish the position and implement any changes which might be required. There will be cash flow implications of a change in status which need to be planned for.

Begin by asking a few questions:

  • Is your end user a small enterprise? If so, you are outside of the rules and need to continue to self-assess whether the off-payroll legislation applies to your contract.
  • If the end user is a medium or large company, start a dialogue to establish their attitude to the contract. Are they likely to classify you as falling within IR35?
  • If the end user does feel that you fall within IR35, will they look to renegotiate the contract to compensate for the additional employers NI cost to them? If this happens, would you be better as an employee?
  • Do you need to wind up your existing PSC and when is the optimal time to do so?
  • What will be HMRC’s attitude to a change in status? Are they likely to revisit your self-assessed status determinations for earlier years?

How can RSM help?

Our specialists have a detailed knowledge of the proposed rules and practical experience of implementing the changes that were introduced for the Public Sector from 6 April 2017.

We have a multi-disciplinary team of experts who can provide advice and help you prepare for all aspects of the proposed changes, including:

  • reviewing and advising on existing structure;
  • performing a status check to establish whether IR35 applies to the contract;
  • establishing the status of the end user;
  • calculating the financial impact of any changes;
  • assisting with the appeals process; and
  • negotiating contract changes on your behalf.