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Consultation starts on new IR35 rules for private sector
by Susie Hughes at 12:53 18/05/18 (News on IR35)
The Government's long-expected and much-feared consultation on so-called tax avoidance in the private sector has been launched.
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A similar exercise in the public sector to tackle what the Government branded 'off-payroll working', resulted in chaos and confusion, which continues more than a year later.

It has always been feared that moves to clamp-down on perceived 'disguised employment' in the private sector would have a similar effect on contractors, agents and clients.

The language in the Government's announcement seemed to signal what lies ahead - even though the consultation has only just got underway.

It said: "A new consultation to make sure that people who effectively work as employees pay the right amount of tax has been launched today (May 18).

"As announced at the Autumn Budget, the consultation will specifically 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 taxpayer could be missing 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."

That message was reinforced by Financial Secretary to the Treasury, Mel Stride, who said: “It’s very important that we recognise the hard work of contractors across all sectors, who contribute to our growing economy.

“But it’s also right that we have a fair tax system that balances efficiency and simplicity for taxpayers, while also supporting our vital public services.”

“That’s why we’re consulting carefully and welcome a wide range of opinions and evidence on how to tackle non-compliance.”

IR35 enforcement
In effect, this is a step towards more stringent enforcement of IR35, which has been a bone of contention due to its 'greyness' for successive Governments since its introduction in 2000.

The introduction in the consultation says: "In 2000, the Government introduced the off-payroll working rules known as IR35. These rules ensure that people working through a personal service company (PSC) who would have been employees if they had been engaged directly, pay broadly the same Income Tax and National Insurance contributions (NICs) as if they were employed.

"We have estimated that only 10 per cent of individuals working in this way apply the rules properly, costing the Exchequer hundreds of millions of pounds in lost tax revenues every year.

"In April 2017, the government reformed these rules for engagements in the public sector, and early indications are that this has resulted in an increase in public sector compliance."

Compliance
Although the off-payroll changes in the public sector have been widely criticised, the Government claims that they have been successful in increasing 'compliance', bringing in £410 million in additional revenue for the taxpayer.

This consultation includes the option of extending those reforms to the private sector, although the Treasury says that no decisions have been made.

The consultation says that 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.

The Government welcomes responses to the consultation, which can be found on its website: Off payroll working in the private sector - May 2018. Closing date for comment is August 10, 2018.

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Susie Hughes © Shout99 2018

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