IR35 Changes

The IR35 rules are designed to discourage avoidance of payroll taxes by organisations who engage workers through personal service companies (PSCs) or other intermediaries rather than taking them on to the payroll.

The IR35 rules were altered from 6th April 2017 for public sector contracts and they will change again for large and medium sized businesses in the private sector from 6th April 2020.  From then the operation of IR35 rules should be standardised for larger engagers across the public and private sectors.

If you provide services through your own PSC or partnership you should review the working relationships with your customers, particularly  for contracts expected to extend beyond 6th April 2020.

First check whether your customer will have to apply the revised IR35 rules from 6th April 2020.  If your customer’s business is “small” your relationship with that business will continue to be governed by the existing IR35 rules.

A “small” business for this purpose is one which meets two or more of these criteria:-

  • annual turnover up to £10.2 million;
  •  balance sheet total up to £5.1 million; or
  • no more than 50 employees.

When providing services to “small” businesses you must decide if your contracts are caught by IR35, and if they are, your PSC may need to account for PAYE on a deemed salary payment to you at the end of the tax year.

If your customer is not “small” it is your customer who must decide whether your contract is caught by IR35 after 6th April, 2020.  If it is, your customer will deduct income tax and NIC under PAYE  from your invoice before paying the net amount to your PSC.  You will not become an employee of your customer but you will be taxed as if you were.

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