Contractors who work through their own personal service company need to assess each of their contracts against the IR35 tests. If the contract falls within IR35, the net income, after deducting a 5% allowance, should be paid out of the company, with PAYE deducted. Otherwise, a deemed salary calculation must be performed at the end of the tax year, on which PAYE must be paid.
From 6 April 2017, the IR35 rules will change for contractors working in the public sector. The new rules affect anyone who is involved in the procurement of a worker supplied to a “public authority” via an intermediary. The responsibility and ultimately the liability of determining whether IR35 applies to the contract will rest with the public authority, agency or third party paying the contractor.
HMRC’s new employment status test was released at the start of March and may be used to assist with determining the employment status for contractors in the public or private sector. HMRC states that it will stand by the result of any test, “unless a compliance check finds the information provided isn’t accurate.”
If IR35 does apply, the payment to the personal service company will be subject to PAYE and NIC (including employer’s NIC and the Apprenticeship Levy if applicable), with no 5% deduction for costs. Full details and HMRC guidance notes in relation to off-payroll working can be found at www.gov.uk.
For further information on this issue please contact Helen Allen.