After April 6 the responsibility for deciding whether tax should be withheld when paying a contractor (IR35) is moving to the public sector organisation you are supplying your services to.
Unless you provide your public sector client with information that satisfies them that tax is properly being paid on what they pay you – they will deduct tax at source.
Contractors role in ‘off payroll’ rules :
- Provide the fee payer with the information they need to decide whether the ‘off payroll’ rules should apply
- Provide the fee payer with information so they can deduct tax and NICs from your payment
- Report properly on your own and your company’s tax affairs
Public sector organisation’s role
- Determine whether the ‘off payroll’ rules should apply
- Notify agencies and workers that they will be working on this basis
- Respond to written requests on whether the ‘off payroll’ rules apply within 31 days or become responsible for making deductions
Many organisations have begun the process of auditing existing contracts. So if you get strange letters or emails from your clients – do not ignore them!
Check whether your current arrangements will be covered by the new rules.
Remember to answer truthfully (it is anonymous) since how the contract really works is what will determine your status in the end.
If you have a clear contract and booking form that reflects the REAL agreement between you and the client – this should be straightforward.
You won’t pay tax twice (hopefully)
You will be able to offset the deduction against any amount you pay yourself via PAYE.
Make sure your accountant, payroll company or bookkeeper know about this as soon as a deduction is made since they will need to adjust that month’s PAYE payments
If you pay yourself by dividends you won’t pay tax again on the dividends relating to this amount.
Make sure your accountant deducts the withholding amount from your sales turnover at the year end so you don’t pay corporation tax on the amount that was withheld.
If you are registered for VAT make sure you have set up a system for accounting for this. Talk to your accountant about how to handle the specific VAT scheme you are on.
Sort out your agreements
There’s never been a better time to sort out your agreements with clients and associates.
If you’d like a free review of your existing agreement – we do a limited number every month. We’d be happy to give you an honest review of what your terms really do for you and what they do to your status.