With the IR35 legislation reform coming to the private sector in April 2020, now is the perfect time to familiarise yourself with the preparations necessary for contractors who are operating via a Personal Service Company (PSC).
Here are three easy ways to make sure you are aware of how this might impact you:
How do I know whether I'll be affected by the change to legislation?
You will only be affected if you are working as a PSC, also known as a Limited Company Contractor.
Up until now it has been the contractor's responsibility to determine whether they fall inside or outside of the scope of IR35, but the change in legislation now means that the onus is on the company with which you are providing services ('client') to notify you.
Should you be notified that your role is inside IR35, you may want to change the way you operate from April 2020. If you are providing services through a recruitment agency, and they pay your company fees, it would be worth discussing your options with them.
It is also worth noting that IR35 only applies to medium and large companies who meet at least two of the following criteria:
- An annual turnover of £10.2 million or more
- A balance sheet of £5.1 million or more
- Over 50 PAYE employees
You can find most of this information on Companies House here, but in any event you should confirm with the client.
I have been informed that my role is inside the IR35 legislation. What do I do now?
Firstly, don't panic! It might seem overwhelming, but it just means you need to make sure that the way you operate is compliant. Should you choose to remain as PSC, then the organisation paying your company feed will need to make appropriate deductions for employment taxes, and this is likely to result in a change in your contract. However, there are alternative methods of payment for you to consider.
By becoming a PAYE employee, either directly with the end client, with your agency or through an umbrella company, IR35 will no longer apply and you will become eligible for additional benefits as an employee.
What should I do if I'm not happy with the response from the company or my recruitment agency?
The client has a duty to carry out the assessment using reasonable care but if you do not agree with their findings you can challenge the decision and the client shall have 45 days to respond.
You can make your own assessment by using the CEST tool on the gov.uk website here. Please note however that the client may stand by their original decision. When completing the tool, you will be asked to provide a range of information including:
- Your responsibilities
- Who decides what work you do
- Who decides when, where and why the work is done
- How you are paid, and if the contract includes benefits or reimbursements
HMRC has stated they will stand by the results of the CEST tool in the event of an investigation or legal dispute, provided that the tool has been used correctly.
IR35 may sound complicated, but getting advice from appropriate sources will help you through the transition period. This could be from your own tax advisor or the organisation that pays your company fees.
For more information, or if you have any questions, please don't hesitate to contact us here.