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Important off-payroll working (IR35) forthcoming changes

Off-payroll working (IR35) in the private sector – what do the proposals for April 2020 mean for Personal Service Companies (contractors)?

One of the biggest discussion points for contractors currently is the proposed changes to the off-payroll rules in the private sector (or IR35 as we all know them!).  The changes planned from 6 April 2020, move the responsibility for operating IR35 away from the contractor’s own company to the client and any agencies involved.  Louise Wood, Managing Director, explains in this note the main changes and provides a quick update on what Prodrill is doing to help you and your clients prepare.

What is IR35?

Briefly, if a worker provides his or her services through an intermediary that they control (typically a personal service company) and work in a manner similar to that of an employee, the IR35 rules currently require them to operate a simplified PAYE/NIC deduction on that income.

What is changing?

The first thing to say is that all the tests which determine whether a worker is caught by IR35 (control, personal service, financial risk etc.) aren’t changing so, theoretically, if you are correctly operating outside of IR35 now, you won’t be affected by these changes.

From April next year, the decision if IR35 applies will rest with the end user of your services.  If they pay you, they will also be liable for any PAYE/NIC that should be deducted.  If a third party, such as Prodrill, pays you, that liability will rest with the third party.

HMRC expect that this simple change will mean that many more contractors are caught within IR35 and are therefore subject to PAYE/NIC deductions at source.

The key point is ensuring that PAYE/NIC is deducted when, and only when, it is properly due.

What is Prodrill doing to prepare?

We are working with our advisors to ensure that we are fully up to speed on the technical and practical aspects of the changes.  We are already in discussions with our mutual clients to help them prepare for the changes.

Prodrill has been actively working with companies such as:

QDOS Contractor, who I am sure many are familiar with, and we will continue to liaise with to remain abreast of the changes and how they may affect individual PSC’s. https://www.qdoscontractor.com...

We have also retained professional advisory firm Ernst and Young, to a give the company guidance on any compliance, contractual, financial and tax implications to the business and across our contractual chain. https://www.ey.com/uk/en/servi...

Louise Wood, our MD has been an active member of Oil & Gas UK’s working group, which was set up to respond to the government consultation on behalf of its members. Over the past 18 months the group have been proactive, meeting regularly and responding to the
various government consultation documents. 

The group have now developed and issued a guidance document across OGUK members
which is available for none members to download (subject to a notional charge). We would encourage you to download this guidance, it’s been devised by OGUK members and will no doubt be referred to by many end user clients as part of their strategy. https://oilandgasuk.co.uk/?s=I...

What can you do now if you are a Personnel Service Company (contractor)?

Clearly, if you already operate IR35 and/or are content with IR35 being operated from next April, there is nothing you need to do currently however, if you are concerned that you will incorrectly be caught by IR35 next year, you could consider the following:

  • Have a chat with your Prodrill contact to discuss your concerns and how they might be alleviated.

  • Review the way in which you provide services to help strengthen the case against IR35 applying.

  • Talk to your accountant/professional advisors and or run your working practices through HMRC’s CEST (check employment status for tax) tool or consider obtaining an independent IR35 assessment.

  • If you expect to be at the same client beyond April, have a discussion with Prodrill and the client, to see what their initial view is but recognise that they may not have even considered the position in detail yet. Most end user clients have set up internal working parties and engage with various internal stakeholders to develop the right strategy for their company.

  • Increase your awareness in the changes, become informed, take a proactive approach to the changes, and don’t expect the client and or your agency to provide all the information to you.

Want to know more about the changes?

Contact our Managing Director Louise Wood who will be only too happy to discuss your concerns.

louise.wood@prodrill-ers.com

+44 (0) 01224 261920

As HMRC finalise the rules in late summer, we will continue these discussions and share with you how you can minimise the disruption that the changes might cause.

Bulletin 1 issued 18 June 2019