Budget 2020: IR35 Changes Confirmed

Dave Hedges profile image

Dave Hedges, Employment Tax Partner

Dave is an employment tax specialist with more than 30 years' experience.

March 11, 2020

The Chancellor has confirmed in his Budget that the proposed IR35 changes will take effect from April 2020. This confirms the expected position although there has continued to be speculation in some quarters that the changes would be postponed or even scrapped.

Whilst this brings certainty it does also bring change. For those businesses which engage an individual who has his or her own company, generally referred to as a personal service company (PSC), the business as the “end user” of the individual’s services, will now be required to consider the relationship with the individual. This is a test for tax purposes only and where it looks like an employment type of relationship, or would but for the existence of the PSC, then the end user is required to notify the individual and to deduct tax and national insurance from the invoiced amount. There is an added complexity where the chain includes an employment intermediary. This is because the end user still has to decide if there is an employment but the responsibility for operating the tax and NIC deduction will pass to the intermediary.

The position is therefore complex to say the least in terms of review, decision making and deduction. This is all very different from the current system where responsibility for review and deduction has historically rested with the PSC.

What does this all mean?

Essentially it is a shift in responsibility with the onus moving from the myriad of personal service companies up the chain to the end users making use of the services provided by each of them. The end user must implement a review process which allows him to reach a firm decision; the recipient of a notice to operate PAYE can contend the decision. For the person paying the invoice, as well as deducting income tax they will be required to account for employer NIC. This is an added cost for them, and this of course is likely to have a commercial impact for the individual.

Whilst it is a tax test and the individual will not be otherwise classed as an employee there may well be wider aspects non-tax aspects to consider. Whilst the new rules will not impact if an individual’s services are provided on a genuine self-employed basis, if there is a “deemed” employment for tax purposes we should consider the basis of the engagement. If you are the end user will you for example pay the invoice under appropriate deduction, will you employ the individual or will you perhaps engage an agency to pay him.

What we do know is that we nowhave certainty over the change from 6 April. What is brings with it is much greater responsibility for end users and the potential for a much less favourable tax position for the individuals providing the services.

What should you do next?

If you would like help or guidance with any employment tax issues raised in this insight, please get in touch with the Wilkins Kennedy Employment Tax Team.

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