New Rules for ‘Off Payroll’ Working
Jul. 29, 2019, 1:53pm
From 6 April 2020, new tax rules are proposed for individuals who provide their personal services via an ‘intermediary’ to a medium or large business.
An intermediary may be another individual, a partnership, an unincorporated association or a company. The most common structure is a worker providing their services via their own company (PSC) which is the term used here to summarise the rules which will apply to all intermediaries.
Similar rules were introduced in 2017 for public sector organisations receiving services from PSCs. The 2020 rules will use the 2017 rules as a starting point which means, in practical terms, that the principles have already been decided but some aspects of the detailed operation of the rules will be decided in a consultation process. The intention is that draft legislation will be published this summer.
The effect of these rules, if they apply to you, will mean:
- the medium or large business (or an agency paying the PSC) will calculate a ‘deemed payment’ based on the fees the PSC has charged for the services of the individual
- generally, the entity that pays the PSC for the services must first deduct PAYE and employee National Insurance contributions (NICs) as if the deemed payment is a salary paid to an employee
- the paying entity will have to pay to HMRC not only the PAYE and NICs deducted from the deemed payment but also employer NICs on the deemed payment
- the net amount received by the PSC can be passed onto the individual without paying any further PAYE and NICs.
The practical effect of these rules is that you will no longer benefit from the potential tax advantages of receiving such income via your own company.
There may also be pressure from businesses to renegotiate contracts due to their increased cost of employer NICs.
The new tax rules apply to amounts paid from 6 April 2020 and so may affect current contracts.
How we can help?
We can help you decide whether to discuss the operation of the proposed legislation with the medium or large business