WHAT IS OFF PAYROLL WORKING IN THE PRIVATE SECTOR?
WHAT IS OFF PAYROLL WORKING IN THE PRIVATE SECTOR?
You can read in my previous blogs my disdain at HMRCs implementation of Off Payroll Working in the Public Sector. Not because I disagree that the correct tax should be paid by all contractors, but the way HMRC have forced unfair decision making processes, inadequate decision making tools, unfair liabilities for 3rd parties, and no employment benefits where tax is paid as an employee.
However, this is a more restrained article aimed to give some basic guidance to those in the Private Sector who may not have much of an understanding of either IR35 or the implementation of Off Payroll Working in the Private Sector,
Until April 2020, when the Government will implement this new legislation, it is the contractor’s responsibility to determine whether they are operating inside (also known as caught by) IR35 or outside IR35. Should HMRC decide to investigate the true workings of their contract and find the contractor had made the wrong determination then their personal service company is liable for any unpaid taxes.
From 5 April 2020 the responsibility, and therefore any potential tax liabilities, falls with the engager if they are medium or large, the definition of which is still to be confirmed. The company paying your personal service company (generally the agency) will be liable for submitting the Income Tax and National Insurance that becomes payable if the role is considered inside IR35, it will receive confirmation from the end client who will have a legal responsibility to provide that opinion for the role.
This means that if your end client is medium or large, it will have to undertake an IR35 assessment for each assignment and decide whether you are operating inside or outside IR35.
HOW WILL THIS AFFECT YOU?
The changes apply to those working through a limited company. They will not make any difference to workers using an umbrella company as all income is already taxed as employment income.
WHAT WILL THE EFFECT BE?
If the assignment is deemed outside IR35 then the director/shareholder can continue to extract profits in a combination of salary and dividends.
If the assignment is deemed inside IR35 then all of the fees will be subject to income tax and national insurance. Simply put, VAT is paid on the gross amount, the employer’s NI (your PSCs NI) is paid over by the agency, along with employee’s NI and PAYE, and you are paid the net plus the full VAT figure. No more tax (ie corporation tax, dividend tax) is due on this payment and it can be taken straight out of your company. Your pay rate will be lower than if it was outside IR35 with this difference being the Employer’s NI (and Apprenticeship Levy if applicable depending on the size of the agencies staff and deemed payroll).
For a more detailed example of the impact please see this original blog
