Changes are being introduced from April 2020 to off payroll workers in the private sector, relating to engagements with large and medium sized companies where a contractor provides services through a personal service company.
The decision whether to apply the rules falls with the engager as it does already for contracts with the public sector.
It’s uncertain how the rules will be actioned by the engager and whether they will wish to renegotiate terms so that the contractor is deemed as employees for tax purposes only. This would then protect their position with regard to PAYE and NIC. However this will have a negative impact on the contractor unless they can be compensated for this additional NIC cost.
These rules are currently in the consultation period and the closing date for comments is 28 May 2019.
To avoid being caught under the IR35 rules, the contract needs to include a clause giving unfettered rights to engage a substitute to do the work on their behalf, however this can be difficult in practice to negotiate.
Contracts will small private organisations will not be required to apply the off-payroll rules.
Karen Keeling is Dafferns Senior Tax Manager, specialising in Smalll Business and Personal Tax, helping implement MTD for our clients.