If you are a consultant operating via a personal service company, or your business has contractors which you pay gross via a company, you should be considering the effect that upcoming changes, which will be brought in from 6 April 2020, will have on both reporting responsibilities and cash flow. Here, we provide you with some background on these changes and the facts that you may need  to consider.

HMRC has recently sent letters to some 1,500 personal service companies, which provide IT and biomedical contractors to the multinational pharmaceutical group GlaxoSmithKline (GSK). The letters ask the companies to consider whether their contract was one of service with GSK (that is, an employment relationship) and if so, to make a settlement of PAYE and NIC by 22 September for the 2018/2019 tax year.

It is clear from this robust action by HMRC that, despite the publicity surrounding the proposed changes in 2020, it still believes that many consultants are not considering the IR35 rules when assessing their tax liabilities.

This latest HMRC tax probe follows other recent high-profile tax cases regarding BBC, ITV and Sky TV presenters and highlights the difficulty in assessing whether a contractor has an employment contract or is genuinely self-employed.

Changes from April 2020

From 6 April 2020, it will become the responsibility of the contracting client (the fee payer) to assess whether the consultant is in fact an employee or is self-employed.

If the contract is one of employment, then the responsibility for calculating and deducting the tax and national insurance contributions due will no longer lie with the personal service company, but with the fee payer. If the contractor is self-employed the payments can be made gross. Under the new rules, an agency supplying the contractor to the end user, as the fee payer, will be responsible for the tax.

However, even if the consultant is deemed to be employed for these purposes, the fee-payer (despite being liable for PAYE and NIC) will not be liable for student loan deductions, statutory payments, or auto enrolment for pensions.

New guidance from HMRC

HMRC have published guidance for fee payers, agencies and the personal service companies to help prepare for the change coming in April. It has confirmed that it will continue to review the online employment status checker.

If you have been in receipt of a letter relating to your employment status, or are wondering how the new rules might affect you, please contact Fiona Phillips, tax consultant at Andrew Jackson Solicitors, at fiona.phillips@andrewjackson.co.uk or speak to the team by calling 01904 275 250.

Further reading:
HMRC website – https://www.gov.uk/guidance/prepare-for-changes-to-the-off-payroll-working-rules-ir35