The IR35 off-payroll working rules that are already in force in the public sector will be extended to personal service companies (PSCs) in the private sector in April 2020.
From that date, the employment status of an individual contractor working through a PSC will be assessed by the ‘end client’ – the company at the head of the labour supply chain that ultimately pays for the services. This will apply for both public sector clients and for large companies in the private sector.
There is evidence that HMRC is already gearing up for a blitz on so-called ‘disguised employment’ – where self-employed contractors set up limited companies to pay themselves through dividends, which are not subject to National Insurance.
HMRC recently delivered letters to almost 1,500 contractors working for pharmaceutical giant GSK, accusing them of being non-compliant with new IR35 tax laws and threatening them with investigation and possible penalties.
HMRC alleges the contractors would have been employees of GSK were they not operating through a PSC and have therefore miscategorised their employment status to avoid higher rates of tax.
Up to 170,000 PSCs are likely to be affected by the new rules. It is not certain how far back HMRC will be looking in its bid to reclaim what it regards as unpaid tax.
If you believe you could be caught up in the IR35 net, please speak to your Harwood Hutton adviser at the earliest opportunity.
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