Off-Payroll Working (Contractors)
The 2018 Budget announced an initiative to level the playing field between contractors and full time employees to ensure they both paid the same/similar levels of tax for effectively the same role. These rules were brought into the public sector in 2017 and from 6 April 2020, the private sector must follow the new requirements.
Currently, contractors enjoy the benefit of operating through their limited companies (‘PSCs’), extracting remuneration through salaries (normally at the personal allowance) and dividends (which are exempt from National Insurance). Not to mention the eligibility to claim tax relief for work-related expenses and business assets.
The New Rules
These rules are encapsulated within HMRC’s Off Payroll Working Rules. Currently the responsibility of determining whether a contractor/worker is a deemed employee sits with the contractor or their intermediary (agent). Both end clients and agents often strived their utmost that there was no deemed employment relationship in place through appropriately worded contracts.
However, from 6 April 2020, any private sector business who engages the services of contractors will need to assess whether a deemed employment relationship exists who those not currently paid via PAYE. The new rules require that the end-client assesses the contractor’s status, and the fee-payer – the party above the contractor in the supply chain – assumes the tax risk. It is noteworthy that this new requirement does not apply to ‘small’ companies as defined by the Companies Act 2006.
How to get help?
For further information, please contact our team to ensure you fully understand the upcoming changes and how we can support you.