Kay Brookes, partner at Bates Weston, introduces  our off payroll working guide and highlights the actions directors of their own personal service company may need to take.

If you are a director of your own personal service company and you provide services to medium or large private sector firms, you need to be sure you understand the “off-payroll” working rules, how to comply and the impact on extracting profits from your company. The “off-payroll” working rules have applied in the public sector since 6 April 2017, but from 6 April 2021 they will also apply to private sector work done through a PSC for all but small firms. A firm is defined as small if it meets two of three tests:- turnover less than or equal to £10.2m, assets less than or equal to £5.1m, employees less than or equal to 50.

Large and medium clients will need to decide if the worker would be an employee, in the absence of their PSC, using the normal tests for employment status and provide a Status Determination Statement (SDS). If your client deems you to be employed for tax purposes they will be responsible for deducting income tax and National Insurance before paying you.

If you operate via a PSC:

  • ask your clients whether or not they are medium/large or small, where it is not already clear
  • make sure that any medium/large clients issue you with a Status Determination Statement, check you agree with it, and if you don’t, raise your concerns with the client and expect a response within 45 days
  • understand that there is still an employment status risk for your PSC under IR35 rules where your client is small
  • consider whether a PSC is still the most suitable model for you, if private sector clients are putting you on their payroll for tax purposes.

Read our guide to Off-payroll working rules for more details. It covers the background to the changes, how work for different clients may be treated differently for tax purposes, some of the new compliance procedures and how the new rules impact on extracting profits from your company. The rules are complex and can have significant consequences for your business, so please do get in touch if you need our help.

Kay Brookes, partner at Bates Weston comments:

“HMRC understands that the new off-payroll rules are complex and is taking a supportive view over genuine mistakes. It has assured taxpayers that they will not have to pay penalties for inaccuracies relating to the rules in the first 12 months of them coming into force, unless there is evidence of deliberate non- compliance. Make sure you understand how the rules will affect your PSC and get in touch with us if you need help with this.”