Following the introduction of IR35 legislation in April to the private sector, there has been some concern that fishermen operating through their own personal service companies (PSC’s) would be caught under these new rules. The impact of the legislation for those within the IR35 rules means payments made to the PSC will now be operated via payroll with Income Tax and National Insurance Contributions deducted at source rather than the much lower Corporation Tax rate applying to profits within the PSC. This will also remove the opportunity for contractors to draw dividends from their PSC from inside IR35 income, which would have seen them benefit from lower tax rates. Businesses which engage with PSC’s are responsible for assessing the status under IR35 unless they qualify for the Small Companies Exemption.
The IR35 legislation requires you to remove the PSC and examine the relationship directly between the boat owner and the fisherman to establish whether this relationship would otherwise be that of employment. If that is the case, then payments should be operated via payroll.
However, a share fisherman (defined as a crew member on a British fishing boat who is not employed and gets all or part of their pay by sharing the profits or gross earnings of the fishing boat) would be self-employed for tax purposes if they worked directly for the boat owner and so there would be no employment relationship. IR35 therefore does not need to be considered for payments made to share fishermen operating through a PSC, regardless of whether the Small Companies Exemption is applicable.
Consideration still needs to given to crew members who are also directors or office holders of the boat owner and for any other individuals who are not share fishermen but are providing services through their own PSC’s. For example, any individual whose pay is not directly linked to the share of the catch may still be caught by IR35.
In respect of office holders, we would recommend that specific advice is sought around such engagements to ensure payment for crew services and director’s duties are kept completely separate and this is backed up by written contracts. Any payment related to director’s duties should be processed through payroll with PAYE/NIC deducted as required.
Should you require any support with these changes and how they will impact your business, please do not hesitate to get in touch by contacting Megan McDonald or our specialist IR35 team. Alternatively you can visit our dedicated IR35 page for more information.