Changes to IR35

Changes to IR35

If you provide your personal services through your own company you may be familiar with the IR35 rules, which have been around for nearly 20 years.

Those rules are designed to discourage avoidance of PAYE and NIC by organisations who engage workers through personal service companies or other intermediaries, rather than taking them on to the payroll. Who makes the decision about whether the worker is inside or outside the IR35 rules is changing.

For private sector contracts, the worker currently makes that decision. Where the worker is caught by the IR35 rules, their personal service company must pay PAYE and NIC on a deemed salary payment once a year.

For contracts in the public sector, the engager must decide whether the worker is caught by the IR35 rules, and deduct tax from the payments to the personal service company, if required.

From 6 April 2020 the operation of the IR35 rules, will be standardised for large organisations in the public and private sectors. ‘Large’ in this context means having net assets worth over £5.1m, or annual turnover of over £10.2m, and over 50 employees.

If you provide your personal services through your own company or partnership, you should review the working relationships with your customers, particularly for contracts which are expected to extend beyond 6 April 2020.

If your customer is not a large organisation, the IR35 rules will continue as now; you will decide whether your contract falls within them or not. If your customer is ‘large’ it will be your customer’s responsibility to decide whether your contract is caught by IR35. In that case your customer will be required to deduct Income Tax and NIC under PAYE from your invoice before paying the net amount to your company.

You will not become an employee of your customer, but you will be taxed as if you are one.