News: September 2015

Consultation on changes to personal service companies (IR35)

In the Summer 2015 Budget the government announced that HMRC would start a dialogue with businesses on how to improve the effectiveness of the existing intermediaries legislation. HMRC will engage with stakeholders over the next few months to explore options to make the legislation more effective in protecting the Exchequer and levelling the playing field between direct employees and those who work in a similar manner but through their own limited companies. HMRC and the Government issued a Discussion Document on 17 July 2015 which seeks to make the existing rules more effective. They have identified that there is a growing body of evidence which suggests there is significant non-compliance with the current rules.

One option being considered would be for engagers to take on more of a role in ensuring that the right amount of employment taxes are paid. As now, the objective would be to ensure that where a worker would have been an employee if engaged directly, then the tax consequences would follow that. Under such an arrangement, those who engage a worker through a PSC would need to consider whether or not IR35 applies (in the same way as they would need to consider whether a worker should be self-employed or actually be an employee), and, if so, deduct the correct amounts of income tax and NICs as they would for direct employees.