The employment status framework is currently the subject of much discussion and debate in Government, the courts, and the media – both in the areas of employment rights and taxation.
One area under particular scrutiny is the tax treatment of individuals working as consultants through personal service companies or PSCs.
Historically, IR35 has provided a level of “insulation” for end user clients engaging individuals through PSCs. This is on the basis that (provided the arrangements were not a complete sham) even if the individual would have been regarded as an employee if he/she had been engaged directly by the end user client, under IR35 the resulting income tax/NICs liability fell on the PSC.
Recent developments mean that it is no longer possible for an end user client to take a relaxed view as to whether an individual has deemed employment status under IR35:
- In April 2017 the so-called “off-payroll working rules” were introduced into the public sector, placing the requirement to determine employment status and account for relevant income tax/NICs in the hands of the public authority (or a relevant intermediary).
- Since September 2017, the new corporate offence of “failure to prevent the facilitation of tax evasion” could potentially extend liability to end user clients in the private sector, where an individual/PSC does not accurately assess their deemed employment status under the IR35 rules. So private sector corporates should already be giving more thought to the status of individuals that they engage through PSCs.
- The Government is currently consulting on extending the public sector “off-payroll working rules” more widely to the private sector. Under the main proposal the responsibility would shift to the end user client to:
- determine, with the help of HMRC’s employment status tool, CEST, whether there is an employment relationship, and
- withhold income tax/employee NICs, and account for employers’ NICs, under PAYE.
Although no date is currently being proposed, it is possible that new legislation to extend the rules to the private sector could take effect from as early as April 2019.
What does this mean for you?
- Consider making representations in the Government consultation, directly or via the CBI, who are calling for a thorough review of the public sector changes and the impact similar rules would have on the private sector, and a delay in introducing any new rules which should reflect the wider employment status debate. To participate in the CBI’s survey, which closes on 27th July, click here. The government consultation document is available here.
- Undertake a review of your business to assess your contractor populations. This may mean introducing a mechanism for assessing whether in the context of a relationship with a PSC, the individual would have deemed employment status, asking for assurance from contractors that they are correctly meeting their tax obligations and including appropriate provisions into relevant contracts.
- Be aware of the commercial sensitivity involved in bringing contractors within PAYE, and the possible impact on requests for employment rights to accompany employee tax status.
If you would like to discuss any of the issues outlined above, please contact Emma Bailey, firstname.lastname@example.org, or your usual contact at Fox Williams.