HMRC is launching a new consultation to make sure that people who effectively work as employees pay the right amount of tax.
As announced at the Autumn Budget, the consultation will look at how to increase compliance with the existing ‘off-payroll’ working rules. 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 tax as employees.
Evidence suggests that the tax will be lost of up to £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. The genuinely self-employed will not be affected.
Last April, the government reformed off-payroll working in the public sector, successfully increasing compliance. The change has meant £410 million in additional revenue. This new 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. IR35 affects contractors including IT consultants, management consultants, and project managers.
HMRC estimates that in 90% of cases within the private sector, the IR35 rules are not applied correctly and we should probably expect that this consultation will result in tightening of the IR35 regulations.
Genuinely self-employed persons will not be affected.
Readers may remember that 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.
Apparently, external research on initial implementation shows that the reform has had relatively little impact on projects or vacancy filling in the public sector.
The consultation will close on 10th August 2018 and we will add further commentary on this topic as and if changes are subsequently made.