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Selling your business and the impact of payments to Personal Service Companies.

Watch out for the impact of Off-Payroll working rules in sale transactions from April 2020 

If you own  a private limited company and make payments to a personal service company (PSC) then from April 2020 it will be the clients responsibility to police the IR35 regime. In short the paying client will have to work out whether there is an employment relationship to which PAYE and National Insurance should be applied. 

Craig Simpson comments “this will make for the likelihood of greater problems at due diligence stage in transactions as over the years many private companies have made payments to PSC’s some of which are owned by shareholders of the company that is being sold”. 

Our expectation is that unless there is a process in place with the paying client to properly assess the employment status of the contract with the PSC, there will be a greater risk of proceeds being held back in escrow on disposal transactions. 

The Off-Payroll Consultation on the operation of the rules for private companies has now closed and we await further guidance from HMRC in due course. 

Craig adds “Companies should review their contracts and working relationships with PSC’s to identify risks before it gets to the due diligence stage of a transaction and take corrective action”

 

This guidance is generic in nature and does not constitute advice. You should take no action based upon it without consulting ourselves or your own professional advisor.