New personal service company rules start
Apr 08, 2021
The new ‘off-payroll’ working rules, also known as IR35, came into force on 6 April 2021. These rules will apply if you supply your services to clients via your own personal service company.
Under the IR35 reforms, which have been delayed twice, end user businesses are now required to determine whether as a worker, you would have been treated as an employee had you been directly engaged. This will create a significant additional administrative burden for those large and medium-sized businesses affected by the new rules. It’s a complex area, based on different decisions by the courts, and HMRC has suggested that end user organisations use the CEST (Check Employment Status for Tax) online tool to help with the determination.
The end user business is then required to issue you, the worker, with a Status Determination Statement setting out the reasoning for their decision, a copy of which is also given to the agency you use where appropriate.
The determination notifies your agency that PAYE and NIC should be deducted from payments to your personal service company. That information should be passed down the labour supply chain if other entities are involved, and the ultimate fee payer is liable for making the tax and NIC deductions. If HMRC are unable to collect the tax from the fee payer, the liability will pass back up the labour supply chain, which is likely to encourage the end user organisation to carry out due diligence in order to limit their exposure.
No change for ‘small’ employers
Small end user businesses will not have to comply with these new obligations. If you supply services to a small organisation then this will continue to be dealt with under the current IR35 rules. In this instance, you and your personal service company will have to effectively self-assess whether the rules apply to that particular engagement.
The definition of a small business is based on the existing Companies Act 2006 definition. This is where a business satisfies two or more of the following features:
- Annual turnover of £10.2 million or less
- Balance Sheet total of £5.1 million or less
- 50 employees or fewer
Please contact us if you need assistance in complying with the new rules, either as a worker with your own personal service company or as an end user business.