Financial Update Oct Nov 2019 Newsletter

3 he rules, commonly known as IR35, apply where a worker provides services to a client or end-user through an intermediary – typically a personal service company (PSC) owned by the worker. At present, if the end- user is in the public sector, then they must determine the worker’s employment status. If the end-user is in the private sector, it is the responsibility of the PSC. From April 2020, private sector medium and large businesses that engage workers via intermediaries will have to determine their employment status just as in the public sector. There will be no change for small businesses, which are those with two or more of the following features: ■ Turnover of £10.2m or less. ■ A balance sheet total of £5.1m or less. ■ 50 employees or fewer. Where a medium or large end-user decides that a worker’s engagement is in the nature of employment, the business that pays the PSC will be responsible for accounting for, and paying, the related income tax and national insurance contributions (NICs) to HMRC, including the additional cost of employer’s NICs. For small businesses, this responsibility will remain with the PSC. STATUS DETERMINATION Medium and large end-users will have to issue an employment status determination statement (SDS). The end-user must take reasonable care in reaching its decision and explain the reasons for it. The worker will be able to challenge the decision, but he or she will have to argue the case against the end- user, not against HMRC. If there is an employment agency or other intermediaries in the supply chain, the end- user should pass the SDS down the line until it reaches the business that will pay the PSC. If that business decides the worker is an employee, then it is treated as the employer and must deduct income tax and employee’s NICs from the payments. It is also responsible for paying the employer’s NICs. There is no right to deduct the employer’s NICs from the payment to the PSC, although it is likely that many agencies will do so. Up to 170,000 PSCs, and the individuals working through them, are expected to be a ected by the change. Some may find it has far-reaching consequences. If such workers considered they were not within the IR35 rules before April 2020, but an end-user then categorises them as an employee under the same contract conditions, HMRC could impose tax penalties for previous tax years. A PSC owner in this position may wish to make an unprompted disclosure to HMRC, which would reduce or possibly avoid penalties. TRIBUNAL CASES A problem for PSCs and their clients is that determining employment status requires applying complex rules that even HMRC can find di cult to interpret. The tax tribunal recently had to consider contracts between two hospitals and a locum doctor who was operating through a PSC. In both cases, HMRC argued that the doctor’s contract terms were in the nature of an employment, but the tribunal found that in one case there were enough indicators of self-employment, so the contract fell outside the IR35 rules. A number of cases concerning television presenters have also resulted in conflicting decisions, with HMRC winning the most recent ones after losing previous cases. Every situation has to be looked at on its own facts and an HMRC status indication may not be reliable. If you are a ected, we can advise. T EMPLOYMENT Determining o -payroll employment status The off-payroll working rules for private businesses are set to change from April 2020, but some recent tribunal decisions have led to uncertainty over determining employment status. Credit: MRProduction/Shutterstock.com A problem for PSCs and their clients is that determining employment status requires applying complex rules that even HMRC can find difficult to interpret.