Following our update earlier this year, this week the Government confirmed that it will not proceed with its proposal to require organisations which engage office holders and other "controlling persons" through intermediaries to deduct PAYE and NICs at source, as they would for their employees.
The proposal would have shifted the tax risk from the intermediary/personal service company to the end user (i.e. the engaging organisation to whom the services were provided).
- The scrapping of the proposal is good news for engaging organisations who rely on IR35 to exempt them from the obligation to deduct PAYE and NICs at source, as the tax risk will remain with the intermediary/personal service company, rather than the engaging organisation.
- Engaging organisations should continue to include indemnities in contractual documentation in relation to tax and employment related liabilities, including future changes in the law (whilst being aware of the limitations of such provisions).
- It should be noted that the Government remains committed toassisting HMRC to police the IR35 regime. In particular, office holders (for example, non-executive directors) should note that attempts to avoid the IR35 regime by providing services through a personal service company are increasingly risky.