News added on 23.05.2018

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IR35

HMRC launches consultation on off-payroll working in the private sector

HMRC is seeking opinions on the best way to tackle non-compliance with the IR35 legislation in the private sector. How could this impact your business?

The current off-payroll working rules in the private sector. The legislation ensures that individuals operating via a personal service company where they would otherwise be an employee pay a similar amount of tax and NIC as other employees. The onus is currently on the contractor to determine whether the IR35 legislation applies to them and then calculate and pay the correct amount of tax to HMRC. 

Concerns. HMRC estimates that only 10% of individuals that should comply with the off-payroll working rules currently do so. It believes that the cost of non-compliance in the private sector will grow to £1.2 billion by 2022/23 and is seeking views on how to tackle this. The consultation highlights the inefficiencies of the current enquiry process for non-compliant cases and the cost to the taxpayer.

Have reforms in the public sector worked? From 6 April 2017 the onus shifted to the public sector bodies hiring contractors to determine whether the IR35 legislation applied to the contract. The end user is now responsible for determining the status and withholding PAYE where contractors are not genuinely self-employed. HMRC estimates that an additional £410 million has been raised already due to the increased compliance within the public sector. Independent research has been published alongside this consultation and shows that there has not been a negative impact on the labour market and wider economy. Research shows that for most public authorities, the reform has not made it harder to fill vacancies, or led to higher rates for contractors. A minority reported increased rates to cover reductions in take-home pay, and some contractors left if the public authority wouldn't’t increase the rate.

Which key points are being considered for the private sector? The consultation invites views on how best to deal with non-compliance in the private sector. HMRC would like to learn from public sector experiences and understand how this could be adapted if a similar reform is rolled out for the private sector. They have also suggested that non-compliance could be addressed by encouraging or requiring businesses to secure their labour supply chains. This could be achieved by charging penalties or publicly naming businesses that do not carry out sufficient checks on the contractors they use.

Any businesses using contractors should consider the potential impact such reforms could have on their business as the costs and additional risks could be significant.

How do you take part? You can find the full consultation and details of how to respond here https://www.gov.uk/government/consultations/off-payroll-working-in-the-private-sector . The consultation closes on 10 August 2018.

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