IR35 - What do I need to know?

Last week Christa Ackroyd, who hosted the BBC’s regional news programme Look North, lost her case at the First Tier Tribunal (FTT), with a headline tax bill of £420,000 under the IR35 legislation

Unlike some of the cases that have passed through the tax courts in previous years involving various pop stars, footballers and other famous people; Ms Ackroyd was not involved in schemes at the more artificial end of the tax planning industry. In fact, the FTT Judge specifically said that he did not criticise Ms Akroyd for not realising that the IR35 legislation was engaged. Indeed she was encouraged by the BBC to contract with them through her own personal services company (PSC) and had taken professional advice in relation to the taxation implications.

So why is this case important? 

Generally, if a person contacts their services via a PSC then less tax and NIC will go to the Treasury than if they were directly employed. This normally leads to savings for the organisation – specifically employers NIC – as well as for the individual. Nearly 20 years ago the IR35 legislation was enacted to try to level the playing field. Where contractual arrangements exist which are akin to employment; the individual PSC has a reporting requirement and an additional tax bill. However the rules are subjective and they have not been particularly well policed by HMRC. This is a high-profile case however and, although it might still be appealed, the fact that it has reached the FTT is perhaps indicative of changing HMRC attitudes.

What else is changing?

A few years ago a new question was added to the self-assessment tax return asking if an individual provides services through a PSC – and it was not wholly clear how HMRC use this information.   

From 6 April 2017 changes in the law mean that public sector bodies, rather than the individual with the PSC, have had to decide whether IR35 applies– and pay the appropriate tax and NICs. It was announced in the last budget that this is likely to be extended to private companies in due course.

So what should you do?

Whether you are an individual providing services via a PSC or the contacting company – now might be the time to take advice. The business tax team at James Cowper Kreston have many years of accumulated experience in employment taxes and can help. You can get in touch through the details listed above or by submitting an enquiry.