What is IR35?
IR35 came into force in April 2000 and was introduced to tackle perceived tax avoidance by workers who supply their services to organisations through an intermediary, such as a personal service company. If caught by IR35 the service company is liable for income tax and National Insurance contributions of the worker.
The intermediary structure is also attractive to the end user (the customer) as it saves on National Insurance contributions. There is also no need to offer employment rights or benefits.
Under the current private sector rules, the intermediary is required to self-assess whether IR35 applies. This has led to poor compliance and the application of the rules largely ineffective. The legislation was criticised for failing to deal with worker’s rights and lost income to HM Revenue & Customs.
What are the changes to Off-Payroll working?
In April 2017 the UK Government announced the ‘Off-Payroll’ reforms. These rules will apply if a worker provides their services through an intermediary. The rules make sure that workers pay broadly the same tax and National Insurance contributions as those who are directly employed. The new rules were initially introduced only for workers providing services to public-sector bodies.
On 6 April 2020 the new ‘Off-Payroll’ rules will come into force for the private sector, and will mirror the public sector arrangement for assessing whether IR35 applies. These changes place the burden for assessing employment status onto the end user of the worker’s services.
Further information can be found at GOV.UK.
Because of these reforms, some contractors may be offered employment by the end user and their personal service companies will no longer be required.
This information is only provided for general information purposes. For specific advice on your individual circumstances, consult your professional advisor.
How we can help you
If you are a shareholder of a personal service company which will cease to be of use after April 2020, then a Members’ Voluntary Liquidation could be a tax efficient process to extract any retained earnings and formally wind-up the company’s affairs.
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