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Changes to IR35 Tax Rules

New and significant taxation rules will replace IR35 in the private sector from April 2020.

IR35 Tax Rule Changes

New and significant taxation rules will replace IR35 in the private sector from April 2020. The new off-payroll working rules will move the requirement to assess the individual’s employment status from the Personal Service Company (PSC) to their end client in the labour supply chain.

A Personal Service company (PSC) is a company owned by a person who is generally the only employee/worker of the company itself.

From April 2020, large businesses will be required to check the employment status of anyone working for them indirectly through a personal limited company using an online test known as CEST. Many companies using PSCs will find that they have to tax the PSCs as employees and pay PSC fees after deduction of PAYE and national insurance.

If the same individual has been providing services under the same contract conditions in previous tax years, HMRC could use Discovery Assessment Rules to claim tax for previous years.

Such ‘back taxes’   may be avoided if a PSC worker who has worked out that they will be within off-payroll working from next year and that this would have applied to their current year contracts make a disclosure to this effect to HMRC without being prompted to do so by HMRC.

The table below sets out when the changes to the IR35 Rules come into effect for different types of end users. 

Rule End Client Who assesses the worker's employment status? Who deducts PAYE/NICs? When From?
Off-payrolling: Public Sector Public Sector End Client Fee payer 6 April 2017
Off-payrolling: Private Sector Large or medium-sized private sector End Client Fee payer 6 April 2020
IR35: Private Sector Large or medium-sized private sector PSC PSC

Until 5 April 2020

IR35: Small Sector Small-sized private sector PSC PSC Ongoing

 

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