As part of the Autumn Budget the Chancellor announced that the government would consult on how to increase compliance with the existing
HMRC ‘off-payroll’ working rules (IR35). These rules mean that contractors such as IT and management consultants who work through their own company but are in practice employed by a third party, pay the right amount of tax as employees.
HMRC evidence suggests that they are missing out on £1.2bn a year by 2023 as a result of people getting the rules wrong, and incorrectly paying tax as if they were self-employed. The consultation will look at how to make these rules work better.
HMRC claims that the genuinely self-employed will not be affected. However concerns have been expressed that the roll-out could cause confusion for contractors and companies. The reason being that the fundamental principles of the off-payroll working rules – that the employment status test determines who should be taxed as employees – are not being considered as part of the consultation.
Last April, the government reformed off-payroll working in the public sector. The change has meant £410 million in additional revenue for HMRC. This consultation includes the option of extending those reforms to the private sector, although no decisions have been made. It draws upon the lessons from the public sector change, by consulting on how the rules can be improved for the private sector, and includes alternative options for addressing non-compliance.
Existing off-payroll working rules (IR35) were introduced in 2000 and are intended to stop individuals avoiding employment taxes by working through their own company. This affects contractors including IT consultants, management consultants, and project managers.
It is estimated that in 90% of cases within the private sector, the IR35 rules are not applied correctly.
In April 2017, the government reformed the off-payroll working rules for engagements in the public sector. Public authorities are now responsible for determining whether the rules apply and deducting and paying the appropriate taxes.
The consultation will close on 10th August 2018 and can be found on the .Gov website.
HMRC is also pursing contractors who have received loans from a trust rather than payment direct from the company they are working for. Due to changes to the tax regulations HMRC now consider such arrangements to be a form of tax avoidance. Bedrock is working on behalf of a significant number of contractors in this position to help them reach settlement with HMRC in advance of the 2019 loan charge coming into force next year. To find out more how we can help read our earlier blog.
