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Markel Tax

12 Oct 2018

Five reasons for PSCs to be proactive to meet the likely IR35 private sector changes

Since April 2000, the primary focus of the Intermediaries Legislation has been the contractor trading through their own Personal Service Company. PSCs have been the solution for end clients needing temporary resources, but not wanting additional headcount; for agencies wanting only to engage limited companies; for contractors wanting to maximise their tax position; and as a consequence of this, the villain of the piece for the press; but most of all, in respect of IR35, the intermediary to be by-passed in creating the hypothetical contract.

And in a few months, or perhaps even in a year and a few months, many believe that the PSC may indeed be relegated to become a bit part player. If HMRC decide that the April 2017 changes to ‘off payroll working’ in the public sector will be replicated in the private sector – be that April 2019 or a year later – it will indeed be agencies who will take centre stage.

Nominally, all private sector engagers will become the IR35 status decision-makers, although one wonders if an April 2019 implementation of what is termed as “IR35 in the private sector” will come too soon for many to realise this. Even where the end clients understand their responsibilities, will they have the technical knowledge to make the right decision?

Indeed, many end clients with close relationships with agencies may well look to the agency for an answer. And we know from our discussions with agencies that the forward-thinking amongst them are looking for solutions which offer insurance-backed consultancy to get processes right and to ensure that they are protected against HMRC investigations and even the potential tax liability of being the fee-payer.

But even though PSCs may find that decisions are being taken above them and that the agency holds the key to getting the correct decision, they still have an important role to play. And that can start now. In fact PSCs should be looking to the future by doing their due diligence and having a contract review now.  And here are the reasons why.
  1. Agencies will want hard evidence – not emotional pleas – to be convinced that an engagement is ‘not caught’ by IR35. Well-reasoned evidence with a clear conclusion – a documented argument they can take to the end client to agree the ‘not caught’ opinion.
  2. If HMRC challenge the decision, it is much harder for them to win their argument if all parties have agreed the status decision, based on an independent, unbiased assessment.
  3. Even if HMRC are successful in winning the argument, then a review demonstrates that due diligence has been undertaken.  It is very hard for HMRC to levy a penalty when a taxpayer has taken reasonable care – yet it would be easy for HMRC to argue a penalty levy of 30% of the tax due if no such due diligence has taken place.
  4. As a PSC you are already under threat now. So if you have a review now, you have taken the right measure to protect your current tax position. If, after the private sector changes, an end client decides incorrectly that an engagement is caught and HMRC decide that the engagement must therefore have been caught previously, you have your riposte.
So PSCs really don’t have to be bit-part players; they still have a role to play, as much for the whole recruitment chain’s benefit as their own.

We would also like to help. And give PSCs a fifth reason.
  1. So, from now until the end of 2018, our fully comprehensive contract review service charges are reduced to £150 + VAT.
That’s a full report which considers both the contractual terms and the working practices on the current law and gives you a clear unbiased and independent opinion – and could save you thousands of pounds if HMRC do start an enquiry. 

For more information please contact our contractor Solutions team on 0345 066 0035 or email taxcontractreviewsuk@markel.com.
Tagged IR35
Next article in series

12 Oct 2018

What is residential property for stamp duty land tax (SDLT) purposes

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