Getting ready for the new tax treatment of contract support
Posted on Monday, September 23, 2019 by Roger Miles — No comments
In order to encourage flexible working in the contractor market, for a while the UK Government offered favourable tax treatment to contractors who used Personal Service Companies (PSCs). More recently though, the Government’s tax collectors (HMRC) noticed that some contractor workers had started to use PSCs aggressively to side-step employee payroll taxes; losing HM Treasury as much as £1bn a year in tax revenue. So, they began a clampdown.
The taxman’s initiative, known as IR35, aims to identify so-called “disguised employees”; that is, contractors whose pattern of work is the same as employed workers but who are using a PSC to hide income tax that they really owe.
HMRC’s thinking is straightforward: “If you work like an employee, you should pay tax like an employee.” The taxman has started to apply a series of tests for each contract worker, to see whether they are “working any differently from an employee of the client”. Starting in the public sector two years ago and extending into the private sector in early 2020, the tests will check the contractor’s patterns of work such as:
- Does the contractor have to work at the client’s office?
- Is the contractor paid per project or milestone, or on a fixed retainer?
- Is the contractor free to accept other work whilst on assignment with the current client?
A big change for some clients – that also affects us as recruiters – is that they will now be held responsible for determining whether each of their contractor assignments is “inside” (“deemed employed”) the tax rule or an “outside” free agent relationship (“not employer-like”). Where clients and contractors agree that an assignment is “inside IR35”, it’s up to the client to make sure that the right income tax and PAYE is paid. This is where Venn Group can step in, to make sure this all works smoothly.
At Venn Group, we’re asking each client service team to explain the changes so that our contractors keep getting paid properly, and to protect business value for clients. We have already identified which clients and contractors will most likely be affected by the new tax system. During the next two months we will be hosting a series of seminars for all staff and those clients affected, helping everyone by demystifying the new ‘tax status test’ and making sure that clients’ projects stay on track so that they don’t lose any valued specialist contract workers.
Roger will be holding Q&A surgeries at our Finance Networking Event taking place on Thursday 26th September. There is still time to sign up if you would like to attend, so please email email@example.com if you would like to receive further details.
Alternatively, for further details, to book a briefing or ask us about working through IR35 generally, contact firstname.lastname@example.org.