IR35: tax shakeup to extend to private sector

An IR35 tax shakeup introduced to the public sector in April 2017 will be extended to the private sector following a Government consultation.

The changes, which take effect in April 2020, are designed to ensure that individuals who work like employees pay broadly the same amount of income tax and national insurance contributions (NICs) as employees, regardless of the structure they work through.

A Government consultation document states that the changes do not affect the self-employed.

The changes introduced in 2017 shifted the responsibility for determining status from the worker’s personal service company (PSC) to the public authorities engaging them.

The public authority also became responsible for accounting for and paying income tax and NICs to Her Majesty's Revenue and Customs (HMRC).

Under the planned changes to be introduced next year, these reforms will be extended to all medium and large companies engaging PSCs.

TWD Accountants’ managing director Ben Oster highlighted that the reforms would mean that medium and large optical practices engaging locums through PSCs will have to assess whether these staff are employees from April 2020.

“This is a result of forthcoming legislation that shifts the responsibility of operating the off payroll working rules from the individual’s PSC, to the business that the individual is supplying their services to. This includes responsibility for assessing whether the rules should apply and deducting the PAYE taxes and National Insurance contributions,” he explained.

Mr Oster added that the 5% allowance that is currently available to those who apply the off payroll working rules in these cases will be removed because responsibility is shifting from the PSC to the business engaging them.

“It will continue to be available for engagements with small businesses where the off payroll rules are applied,” he added.

Anyone concerned about the change should contact their accountant, Mr Oster emphasised.

Head of employment at the AOP, Deborah Nathan, shared that as part of good practice employers should assess whether locums are genuinely self-employed.

One of the tools to help employers do this is a status checker available through HMRC’s website.

However, Ms Nathan highlighted that AOP members should be aware that HMRC are reviewing the tool so it is likely to be updated in the future.

Ms Nathan noted employers should assess whether someone is self-employed by looking at how they are working in practice.

Both HMRC and employment tribunals will look beyond the label of self-employment when they are assessing whether someone is self-employed, she emphasised.

Ms Nathan shared that locums should proactively consider their business arrangements and whether they have an appropriate locum contract in place.

The AOP has locum template contracts that are available for members to use.

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