Last week’s budget resulted in some important developments in employment taxation that will be relevant to businesses in the UK.
Off-payroll working (IR35)
The Chancellor announced a Government consultation on the proposed extension of the IR35 tax avoidance reforms to the private sector. At present, only the public sector is subject to the revamped regulations which were introduced in April 2017 and since then levels of compliance in the public sector have improved. Despite this, there has been strong opposition from private sector stakeholders to introducing similar reforms in their sector.
The IR35 rules ensure that individuals who work as employees are taxed as employees, even if they choose to structure their work through a company. However, the compliance burden is placed on the personal service company and many believe that the current rules are being abused by entities which are effectively employers.
Before going ahead with the proposed extension of the rules, the Government will sound out those in the public sector who have already experienced the reforms. HMRC is confident that the public sector has seen an increase in compliance as a result of the reforms and it is therefore likely that the measures will be extended to the private sector, unless the consultation results in a dramatic U-turn.
If the changes are implemented, they will have a significant impact on the cost of using personal service companies with employers being faced with National Insurance Contributions (NICs) if the contractor falls within IR35.