Is my business affected by IR35?
There are three different types of businesses that may be affected by the new rules – those using the services of Personal Services Companies (“PSCs”) – the “Client” - and Agencies who provide workers through the worker’s own PSC, and the PSCs themselves. Firstly, we need to be very clear about what a PSC actually is…
Personal Services Companies (“PSCs”)
The actual term used in the new rules refers to workers who provide their services through an “intermediary” – which can include a partnership for example but in the vast majority of cases this will be a limited company. In order for the company to be treated as a PSC for the purposes of any given contract then broadly the worker (including anyone associated with them) has at least a 5% holding in the shares of the PSC itself.
The rules are more complex than that but broadly if the worker has no interest in the company providing their services then the company is not a PSC as far as that worker is concerned. So a company providing the services of a worker to a client where that worker does not have any ownership interest in the company should not have any IR35 concerns at least as far as that worker is concerned.
Client
The client is the end user of the worker’s services. The new rules for private sector engagements only apply to clients which are medium or large businesses – they do not apply to clients which are small businesses. For these purposes a company or an LLP is a small business broadly if it satisfies (at least) two of the following:
Annual turnover of not more than £10.2m
Balance sheet total of not more than £5.1m
An average number of employees must not be more than 50.
There is a slightly different test for groups of companies, while for non-LLP partnerships and sole traders the test is simply that their annual turnover is not more than £10.2 million.
Agency
How an agency is affected by the new rules will depend on where they sit in the supply chain. If the agency is the one that actually pays the PSC, then it may have an obligation to operate PAYE and pay National Insurance if the new rules apply. For agencies which are not the payers there may still be obligations to pass on determinations made by the client.
In the next in our series of articles we will look at how the new rules will affect client businesses and what their obligations will be from 6 April 2021
Visit our hub
To help you check on your preparations for the changes to IR35, we have created the IR35 hub where you will be able to find helpful resources and information.
Written By Paul Brown | Tax Partner
Read more in our IR35 series
