From April 2020 Medium and large private sector firms will have to check whether contractors need to pay income tax and national insurance contributions, shifting the responsibility to conduct such checks from the contractor to the organisations using their services.
Medium and large organisations are expected to determine IR35 status (i.e. whether the contractor is working as an employee and should pay income tax/NIC on their earnings, or if they are a true service provider) of the individual contractors working in their organisation.
These changes are designed to ensure that contractors pay the same tax and National Insurance Contributions as an equivalent employee.
These changes do not affect small companies. Where the end user is a small company the personal service company (PSC) will continue to be responsible for assessing whether IR35 applies.
The companies act 2006 defines small company as meeting at least two of these qualifying requirements :
This reform will bring the private sector in line with the public sector, for whom the reform was implemented in 2017. Where IR35 applies, the fee payer rather than the individual contractor, will be responsible for withholding PAYE tax and NIC from the contractor’s fees and paying it over to HMRC.
HMRC estimates 170,000 individuals working through their own limited company and 60,000 organisations that use these workers will be affected.
To find out more about IR35 compliance checks click here.
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