16th July 2019

Draft employment taxes legislation has now been published in respect of changes to the IR35 rules which affects all medium and large businesses in the private sector from 6 April 2020.

The legislation will apply in situations where a worker engaged by an employer, through their own Company would be treated as an employee or an office holder of an employer, if their own personal service company (PSC) did not exist. In these situations it will now be the responsibility of the employing Company to determine the employment status of the individual and deduct tax and NIC from any payments.

Who is affected?

The exact definition of what constitutes a medium or large employer is similar to the existing Company Law definitions and will be defined as medium or large if it meets any two of the following tests:

  1. An annual turnover of £10.2 million or more;
  2. 50 employees or more on average; or
  3. Assets worth more than £5.1 million

Non-corporates who satisfy the turnover test will also be within the rules.

Impact for employers

Currently, in the private sector it has been the responsibility of the PSC to evaluate the IR35 status for each contract and deduct tax accordingly, however the new rules put the burden of responsibility for correctly determining whether an individual is an employee with the company that engages the services of the worker (i.e. the employer if it is determined that the worker is an employee).

If an engagement falls within the IR35 rules, the employer paying the PSC, will need to make any payments with deductions of tax and national insurance. They will also be required to pay Employers NIC and the Apprenticeship Levy on any payments.

Any risks in association with the above tax liability will also shift to the employer. If an HMRC investigation finds that a worker has been paying tax incorrectly the employer can be targeted for backdated tax, penalties and interest, (unless the employer has taken reasonable care when assessing employment status).

If you have any questions or have any concerns on how these rules will impact you, please contact Lee Muter, Employment Taxes Partner, on 0191 243 6089 or at leemuter@unw.co.uk.

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