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Government launches new private sector IR35 consultation

Article posted: 31st May 2018

HM Treasury and HMRC have opened a joint consultation on how the tax rules applying to off-payroll working are being applied. More commonly known as the IR35 rules, the stated aim of the consultation is to increase compliance with the legislation first introduced in 2000.

In simple terms, the rules are meant to ensure that someone working like an employee, but through a company, pays a similar amount of tax as if they were directly employed. However, since their introduction, the legislation has been subject to comment and scrutiny, with a significant number of cases decided by the courts. Furthermore, HMRC estimates that only around 10% of people who should be applying the rules do so correctly.

In April 2017, the government reformed the rules for contract workers in the public sector so that the relevant public sector body has to determine the correct status of such workers. HMRC estimates that this reform has already raised an additional £410 million of income tax and NICs since 6 April 2017.

The new consultation document makes clear that the government’s preferred option is to reform the rules in the same way for the private sector, adding this is not a done deal.

We will have to wait and see what the outcome is, but it seems inevitable that this will be a greater focus for HMRC in the future. We advise entities which engage off-payroll workers or those who would be categorised as such a worker to carefully ‘watch this space’ as it seems inevitable that changes will be imposed.

The ‘Off-payroll working in the private sector’ consultation ends on 10 August.

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