Following a late night session earlier this month, HMRC announced new and fairly concerning directives on taxation for freelancers classed as ‘PSC’. Determined not to get caught out, we asked Kenny Fitzgerald of My Accountant Friend to see if he could shed a little light on the subject.
What in the blazes is a PSC?
PSC stands for ‘Personal Service Company’. If you’re a freelancer that provides a service to clients (rather than, say, making and selling a product), then you can probably assume you are a PSC. Consultants, designers, project managers – all of these would class as a PSC.
Looking at the announcement, there suddenly seems to be a lot of tax to be paid – tax taken at source, VAT to be collected, NI contributions to be paid, corporation tax… or has it always been that way?
These taxes have always been payable but, previously, you could set your own salary to reduce the amount of NI payable. This will not be the case going forward if you’re working in the public sector and your client considers you to be inside IR35, as they will be deducting tax at source based on you being an employee, even though you won’t have any of the benefits of being an actual employee.
One bit of HMRC wording that seems to need explaining refers to: “providing your services to a public authority client”. How do you know if your client is a public authority? Will they be wearing a badge?
No, it’s unlikely you’ll know them by any distinguishing marks, but yes, I can see how it might be confusing. Basically, a public authority client is classed as any company covered by the freedom of information act, so that includes organisations such as the BBC and NHS.
Am I right in thinking that PSCs should be concerned, then?
It is not looking good if you are deemed inside IR35 by your client, and unless you have other work going through your company that is definitely outside IR35, it would be a good time to look at the options available to you. Naturally, I recommend talking to an experienced accountant.
We are also seeing a number of individuals walking away from the public sector as a result of the changes. If that’s the option you choose, however, you’ll have to leave soon as any payments received after April 5th will be caught by the new rules, even if you did the work you’re being paid for prior to that date. That’s worth repeating, I think: any payments received after April 5th will be subject to these new rules.
Any more concerns?
A few, yes. One thing we are really concerned about is if your client now deems you to be inside IR35 even though you previously worked for them on an ‘outside understanding’. In which case, HMRC could go back and retrospectively deem you inside and come after you for the tax that would have been paid previously. This is a worst case scenario but HMRC have not denied that they could look to do this.
What advice are you giving to your clients at MAF?
At the moment we’re considering the options and the best course of action. We’ll be speaking with any clients that may be affected by this in due course. So, watch this space, basically.
A blog I was reading said that several changes, including this one, had been put through by HMRC “late at night” over the last week. Is there anything else we should know about?
HMRC have said they will be producing an online tool to help the decision process on who is caught, however this will not be available until around mid-March, which doesn’t give anyone much time to take any action and may also be too late for some people to get out of their roles before receiving payment. Further to that, they have not provided much detail on how the payments will actually work and be recorded with HMRC, and this causes more issues if VAT is involved as well. All in all, it seems not very well thought out, and very much a rushed job.
Do they often do things “late at night”? Is that because they think nobody is watching?
They do what they want, it seems, more and more.
If you’re concerned about where you stand on HMRC’s PSC ruling, get in touch with us at My Accountant Friend. We’re always happy to help.
