From 6th April 2020, new legislation will come into force impacting those working under Personal Service Contracts (PSC’s) in the private sector to mirror the requirements in the public sector. All contractors using as PSC as an intermediary will be impacted alongside recruitment agencies, and medium and large sized ‘end clients’.
Where the end client is a small business this legislation does not apply. To satisfy the criteria of being a small business, two of the following criteria should be met as specified by Companies House; annual turnover of no more than £10.2 million, balance sheet of no more than £5.1 million and no more than 50 employees. Where the end client is determined as a small business, the ownership remains with the PSC to determine the IR35 status of a contract. The legislation makes provision for ensuring medium and large companies do not create smaller subsidiaries to avoid compliance with the legislation.
The responsibility lies with the end client to assess the IR35 status of a contract and must produce a ‘status determination sheet (SDS)’ which outlines the reasoning for the decision made. A copy of the SDS must be provided to all impacted parties including the PSC and any agencies involved if this is applicable. The party responsible for administering the SDS is responsible for the payment of tax liabilities and the legislation allows HMRC to recover taxes from any other ‘relevant person’.
In cases where the decision made by the end client initiates dispute, there is a 45 day period to allow the end client to respond. Reasonable care is required to be taken to assess each case on an individual basis.
It does remain an option to work through a Limited company which may remain the best option even when the contract is inside IR35. The legislation has prompted some negative commentary in respect of the added obligations to complete a SDS, the removal of the 5% administration allowance for PSC’s and the risk to the PSC from the dispute resolution process.
If you have any questions on the changes and how you may be impacted, please contact us.