Markel Tax, a leading UK tax consultancy, is predicting a significant rise in red tape for the UK’s private sector as a result of the IR35 draft regulations released last week.
“Up until now, end clients in the private sector have not had to check whether engaging the services of a personal service company worker falls within IR35 guidelines,” said David Harmer, Tax Consultancy Manager at Markel Tax. “But if the draft regulations come into force, they will have to start doing this.”
Firms with a turnover over £10.2 million, a balance sheet in excess of £5.1 million or over 50 employees will be affected.
“There are 43,000 private sector firms in the UK with over 50 employees, all of which could potentially be caught by this legislation,” said Harmer. “If that happens their administrative costs will rise, particularly if they engage a significant number of PSC workers.”
The end-client will be obliged to make a decision as to whether a personal service company (PSC) worker falls within IR35, and for ensuring the correct tax treatment is applied. As part of the administrative process, the end client must produce a status determination statement (SDS), providing a conclusion and reasoning as to whether an engagement IR35 applies to the engagement.
In addition, recruitment companies—frequently the ‘fee payers’—will be responsible for ensuring the correct tax treatment is applied to the PSC, depending on whether they fall outside of, or within the IR35 regulations.
“Most of the concerns raised in the spring consultation have been ignored and the UK’s private sector companies will now be under pressure to meet yet more administrative requirements imposed by the regulators,” concluded Harmer.