HMRC publishes IR35 guidance

HM Revenue & Customs (HMRC) has published its first in-depth guidance for off-payroll workers (IR35) and how they will operate in the private sector.

The new rules are set to come into force in April 2020, with it becoming the responsibility of employers to determine the employment status of individuals.

The introduction of the rules aims to make sure that workers who use an intermediary pay system to provide services pay approximately the same in tax and National Insurance contributions (NICs) as an employee.

Intermediaries

An intermediary is usually a personal service company (PSC) used by the individual, but partnerships, managed service companies or another individual also come under this category.

The public sector has already seen the introduction of the new rules, while they will come into force in the private sector on 6 April 2020, as they are extended to medium and large-sized private sector clients who use the services of workers using intermediaries.

Small firms will be exempt from the IR35 rules, with the intermediary being tasked with the responsibility of deciding on employment status. If the intermediary then decides the rules apply to them, they are then responsible for tax deductions as well as NICs.

Deductions that are excluded

Student loan repayments for individuals who use their own companies are not the responsibility of the private sector organisation, with the worker accounting for their student loan responsibilities in their tax return.

The worker is not entitled to statutory payments because they are not an employee, which also means that they are not enrolled onto a pension automatically. The individual’s statutory payment entitlement is through their employment with their intermediary, while they can also make pension contributions as an employee of their intermediary.

Individuals who provide their services via an intermediary are also not entitled to employment rights, including holiday pay.

Read the guidance in full here.

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Rob Chedzoy

Rob Chedzoy

Tax Partner
Rob Chedzoy is a Chartered Tax Adviser (CTA), specialising in helping clients to find the most tax-efficient ways to do business.