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Budget 2018 - IR35 – privatising the public sector approach

It has long been an aim of HMRC to ensure that as many individuals as possible are within the PAYE system, literally paying tax and national insurance as they earn. The rules relating to companies have historically enabled individuals to extract funds in a very tax efficient manner leading to an anti-avoidance framework applicable to Personal Service Companies (PSCs) known as IR35. 

The purpose of this body of rules was to ensure that individuals could not lower the amount of tax and national insurance they paid by operating through a PSC as compared to someone performing the same tasks as a direct employee.  The system has never really worked to achieve the desired outcome with an estimate that only around 10% of PSCs which should be applying the rules actually do so.  In April 2017 the government reformed ‘off payroll’ working rules in the public sector to put the onus for operating PAYE on the payer as opposed to the recipient and evidence suggests that this reform is working well ensuring greater levels of compliance.

These rules will now be applicable to the private sector as well from April 2020.  There are no changes to tax or national insurance charges and there is no intention that someone who is genuinely self-employed or is running a business through a company should be affected.  However, from April 2020 the responsibility to determine whether or not an individual relationship with a business is in fact one of employment and PAYE should therefore be operated on payments made will fall to the ultimate engager of the services.

If you currently work in a way that puts you at risk of being treated as an employee of a third party engager or if your business relies on contract staff operating through PSCs, you may wish to take advice and consider the terms and conditions under which you are operating.  A genuine business arrangement may fall foul of loosely worded contracts and working conditions.  It may be time to review and amend to protect the relationship going forward.

There is plenty to think about, please contact me or your usual Mercer & Hole contact for further advice.



Date: 1st November, 2018
Author: Jacqui Gudgion


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