With under six months until the new IR35 tax legislation is implemented, NACFB Members who employ individuals as contractors through a personal service company should be aware of the impact the changes will have on their business.
IR35 is tax legislation designed to combat a form of perceived tax avoidance, by which self-employed contractors supply services to clients via an intermediary commonly known as a personal service company (PSC). The legislation was due to be implemented in April 2020 but was delayed because of COVID-19 and deferred to April 2021.
NACFB Members who utilise contractors or self-employed agents may benefit from an exemption for ‘small companies’ to whom the scheme will not apply. Contractors working for small companies will need to determine their own employment status.
IR35 is complex legislation and continues to be a challenging area and highlights the importance for contractors to carry out due diligence before and during a contract. Both contractors and businesses need to be fully aware of the law and should obtain advice from IR35 experts to ensure they are compliant rather than face significant penalties and fines. Regulated Member firms should be conscious of the FCA’s rules relating to the use of agents and whether this is compatible with IR35 legislation.
The NACFB recommend firms assess whether their arrangements and systems and controls are appropriate and that self-employed agents are not operating outside of the regulatory perimeter and require authorisation (either directly or as an Appointed Representative) themselves. The government also have more guidance on on the roll-out of IR35 online here.
Small company exemption
These changes will not apply to small companies in the private sector. Contractors working for small companies will continue to determine their own employment status. Under Section 382 of the Companies Act 2006, ‘small companies’ are companies that satisfy two or more of the following criteria:
- Annual turnover not more than £10.2 million;
- A balance sheet total not more than £5.1 million;
- Not more than 50 employees.
Implications for larger firms
Medium or large-sized businesses should seek guidance and consider:
- Undertaking an audit of the terms on which the self-employed contractors are engaged under a PSC;
- Review how the working relationship operates in practice;
- Review the written terms of the contractual relationship;
- Issue a Status Determination Statement.
What should you do now?
NACFB Members can access a a free tax advice line via NACFB Broker Protect, allowing you to speak with experienced tax advisors. Sign-up for Broker Protect here.