New rules for Personal Service Companies

Published on 14th March 2019

The 2018 Autumn Budget announced changes to the ‘off-payroll’ working (or‘IR35’) rules, set for April 2020. This may affect you if you work on a contract through a personal service company (PSC) in the private sector, or hire or place such workers.

The IR35 rules aim to prevent avoidance of tax and national insurance contributions (NICs), where an individual works for a client through an intermediary (usually a PSC) and avoids being taxed as the client’s employee.

Currently, the intermediary decides whether the rules apply to a private sector contact and, if they do, must then account for PAYE and NICs on the fees received.

From 6 April 2020, this responsibility will shift to the party engaging the worker in a considerable proportion of cases. If IR35 applies, the business, agency or third party paying the intermediary must deduct income tax and employee NIC and become liable for employer NICs.

The HMRC online Check Employment Status for Tax (CEST) tool: check-employment-status-for-tax can be used to establish whether off-payroll  working rules apply to any given contract. HMRC will support the result, unless the information supplied is inaccurate.

The service can be used anonymously and  will not store any personal details or findings. The results can, however, be printed. Any changes to the working arrangement should be run through the check again.

The change will affect employing businesses which are classed as ‘medium and large businesses’, but not ‘small’ ones, as defined by the Companies Act 2006 definition of a
small company.

The government assures that the change is not retrospective. Where a business decides a worker should come within the rules, an enquiry into earlier years will not be triggered.

For more information on how the new rules will affect your personal services company, please contact us on 01392 211 233.