Significant financial impact to all parties
The financial benefits achieved through working via a PSC can be significant. This is primarily derived through the application of dividend income, which has a lower tax rate, as opposed to salaried income at the higher tax payer rates. PSC’s benefit the supply chain as employment on costs are eliminated and they benefit the contractor in that they can take their income tax-efficiently. Unfortunately, these benefits can motivate the supply chain, end hirer, agency and the contractor to potentially apply the use of PSC inappropriately. However, should the contractor be deemed inside the scope of IR35 incorrectly, this can affect their net take home in the region of 13-14% per week.
HMRC have indicated that they are aware of this inappropriate use of PSC’s and, as such, disguised remuneration. There is a greater focus by HMRC on their legitimate use and HMRC have introduced a TAAR (Targeted Anti Avoidance Rule Task Force) indicating that it will be aimed at the mass incorporation of personal service companies”.
Under new off-payroll working rules:
End clients are responsible for determining the employment status of their contractors under the IR35 rules.
The fee-payer is responsible for deducting the relevant tax and National Insurance contributions at source. Depending on the contractual chain, this would usually fall to either the client or recruitment agency.
WILL HMRC INVESTIGATE INTO PREVIOUS TAX YEARS IF MY CLIENT CHANGES MY STATUS?
HMRC has specifically stated that they “will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35 for the first time”.
We did however hear of a few isolated cases in the public sector, and in light of the recent GSK compliance activity* we would advise caution and ensure you have evidence of your due diligence in ascertaining your status prior to April 2020.