Forthcoming IR35 tax legislation changes – how will this affect your business?

Gillian Cumming
Gillian Cumming
Senior Solicitor
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IR35 is tax legislation which was introduced to address a particular form of tax avoidance whereby individuals might try to avoid paying income tax and national insurance by supplying their services through a personal service company (a PSC) and paying dividends instead (when in reality, the individual(s) involved may work in a very similar way to direct employees).

As you may be aware from press coverage, the Government has published draft legislation which means that, with effect from April next year, medium and large companies in the private sector which contract with PSC’s will be directly responsible for determining the appropriate tax regime to apply to the arrangement, and, ultimately, to ensure that any liabilities for income tax and national insurance are properly categorised and accounted for through PAYE.

The liability for clarifying status and accounting for tax appropriately may therefore fall upon your business with effect from Spring next year if you engage individuals to provide services to your business through a PSC, or if you provide staff to others through PSC’s.

The starting point for thinking about any liabilities that might arise in this area is to carefully consider the relationship that you have with, for example, any self-employed consultants or contractors. The contractual arrangements that are in place will be a helpful starting point, but the practical reality of such relationships will also need to be examined closely.

The link to the government guidance on the new rules, which includes a link to HMRC’s helpful “Employment Status for Tax” checker, can be accessed here.

We recommend that any employers potentially affected by the IR35 tax changes seek early tax advice from their tax advisors to ensure clear understanding of any liabilities that may arise, and for guidance on the steps that may need to be taken between now and Spring 2020.

If you wish to discuss the status of any such relationships that you have with PSC’s from an employment law perspective, or if we can assist you in relation to any other employment law matter, please do not hesitate to contact a member of the team on 0141 331 5150.

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