Self-employed contractors who operate their businesses through a limited company need to look out for new tax rules changes which come into force next month.
Rebecca Bloor, Tax Planner here at Dyke Yaxley Chartered Accountants, says the legislation will take effect from April 6.
“The changes will shift the burden of determining the tax status of these businesses from the contractor themselves – or their Personal Service Company – to the end-user who is paying for their services.”
Rebecca says under the new rules, if the end-user was a medium or large business, they would need to assess whether the self-employed person supplying services through their own limited company or through an intermediary, would in fact be considered to be a member of staff if they were directly employed.
“If it’s determined that an employment arrangement would exist, then payments to the intermediary company will need to be made as if you are paying an employee. Tax and employee National Insurance contributions will need to be deducted and paid over to HM Revenue and Customs, together with the corresponding employer NI contribution which is currently charged at 13.8%.”
Rebecca says the Government have introduced the new rules to try to level the playing field and to tackle the perceived abuse of the tax differential between corporate and income tax rates.
“The aim is for the self-employed contractor or their intermediary company to pay broadly the same amount of tax and National Insurance as if they were an employee of the end-user.
“Similar rules were introduced in the public sector in 2017, and the Government had intended to apply them to the private sector from 2020, but the changes were deferred for 12 months until this year. The Spring Budget did not deliver a further reprieve and so both contractors and medium and large end-users will need to be prepared for the changes ahead.”
Rebecca confirmed that the new rules would not apply to smaller end-user companies who met two of the following criteria: a turnover of less than £10.2m, a balance sheet total of £5.1m, and fewer than 50 employees.
“The legislation is complex and may involve many different departments in the end-user’s company such as HR, finance, payroll and procurement, so it could take time to untangle the finer details.
“That’s why it’s vital that both the self-employed contractors and the companies who use their services take steps now to review their arrangements to ensure they are not breaching the IR35 guidelines when April comes around.”
Rebecca Bloor, Tax Planner