With Alastair Byrne of JWP Creer

HMRC have for the last 15 to 20 years waged a war on the tax benefits of individuals trading through their own personal service companies (PSCs).

The tax benefits for both the ‘employing’ company and the individual can be considerable, being mainly savings in PAYE and National Insurance costs for both the individual and the employing company.

HMRC first introduced its infamous IR35 anti-avoidance legislation in 2000 and have had a number of attempts to tighten these rules further, albeit that the government and many public bodies (including the BBC) rely heavily on employing staff cost-effectively through these companies.

HMRC are currently consulting on how they might tighten the rules further. The current idea is to push the burden of administering the IR35 regime onto the employing body instead of the PSC.

This will mean that the employing body, often a public-sector employer or even a charity, will have to be responsible for confirming the PSC’s tax status.

The government believes that only one in ten of PSCs operate the IR35 legislation correctly. This has often gone unchallenged by HMRC as it does not have the resources to challenge and inquire into every tax return. By pushing the burden of administration on to the employing body HMRC hope that the employing body will effectively police the rules for them.

The proposal will initially apply only to public-sector bodies, including Government departments, police and fire authorities, the NHS and educational bodies, but not private charities who carry out public tasks for the state.

However, the implications are that if it proves successful then it could be widened out to the private sector.

Once the consultation process has been completed later this month, draft legislation will follow, with a view to introducing the legislation from April 2017.

Whilst we await the outcome, should you have any queries on IR35 legislation, please contact Alastair Byrne on ajb@jwpcreers.co.uk or telephone him on 01904 717260.