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IR35: changes ahead for off-payroll workers

People working ‘off-payroll’ via a limited or personal services company (PSC) need to be aware of imminent changes to the rules, accountancy firm UHY Hacker Young is warning.

From 6 April, the updated IR35 regulations come into effect. They aim to create fairness between those who are directly employed or via a PSC so that income tax and NIC payments are the same and remitted as required.

The changes won’t affect all contractors, as they are aimed at medium to large companies in the UK, but it will if you are given the status of ‘deemed employee’. The end client company will be responsible for assessing your employment status, which will decide if you should be treated as an employee or as self-employed for tax purposes. If it decided that you have an employment relationship with your client then they, or your third-party agency, will need to deduct income tax and NICs from your income to pay HMRC directly as per PAYE.

This is currently the worker and the PSCs responsibility but HMRC report that less than 10% complied with their responsibilities. These changes could affect up to 170,000 individuals who would be employed if engaged directly. The legislation is aimed at those who don’t comply with the existing rules, so if you already do (according to HMRC) there should be little impact.

The need-to-know facts

  • If you work for small businesses, you won’t be affected.
  • It will not apply to those who are, or are deemed to be, self-employed.
  • The status will not be applied retrospectively so if you start paying employment taxes under IR35 for the first time in April, you will not be targeted for taxes in previous years.
  • An organisation’s decision on whether you fall within the rules will not trigger an enquiry in to previous years either.
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