Personal Service Companies
6 April 2021 saw major changes to the tax rules for workers providing services via their own ‘Personal Service Company’ (PSC). Since April 2017, the worker’s clients in the public sector have had to make decisions over the worker’s tax status; this is now extended to private sector clients too, unless those clients are ‘small’. There is also an exclusion for clients that are neither UK resident nor have a fixed place of business in the UK.
Where they apply, these ‘off-payroll working’ rules replace the previous IR35 regime, meaning that HMRC cannot come after the PSC for unpaid PAYE and National Insurance Contributions (NIC), if the effective relationship between the worker and client for tax purposes is regarded as employment rather than self employment. It will be the end-client, or fee-payer (if different), which will be liable to withhold the worker’s payroll taxes when paying the PSC’s invoices. Note, however, that the PSC still has IR35 tax risk where the client is either small or a non-UK business.
Any non-small UK private sector client, or public sector client, must now provide a Status Determination Statement (SDS) to the contractor and all relevant parties (e.g. a recruitment agency) in the contractual chain, at the time the contract starts or before the off-payroll worker starts work. This will indicate whether the client intends to put the worker on the payroll for tax purposes. Some businesses contracting with PSCs have been slow to issue these, so if you have not received one you should chase this up with your client.
If the contractor disagrees with the decision made by their client on the SDS, they can ask the client to reconsider it.
We can help you decide whether an SDS appears to be correct or not.
These new rules make an already complicated area of tax even trickier to deal with. The good news is that HMRC has confirmed it will adopt a ‘light touch’ approach to penalties. There will be no penalties for inaccuracies relating to the off-payroll working rules in the first 12 months of the regime, unless there is evidence of deliberate non-compliance.