The Chancellor announced the extension of off-payroll working ‘IR35’ rules to the private sector. HMRC have said that they will not look at prior IR35 compliance as a result.
However the Low Incomes Tax Reform Group (LITRG) are concerned that the changes are likely to see some low-paid workers pulled out of limited companies, leaving them with messy compliance issues that could follow them around for many years.
Under the changes announced, businesses will become responsible for assessing an individual’s employment status. There will be an exception for small businesses, alleviating them from the administrative burdens that come with the changes.
The LITRG welcomed some aspects, including the commitment from HMRC that they won't take historic employment status into account.
But they were concerned that workers who have been 'encouraged' into limited companies at the behest of their client to reduce their financial obligations - might now be 'dissuaded' from the limited company route.
Ironically, it was the Government's stated belief that workers were being forced into a similar pattern of operating - the so-called Friday to Monday scenario - which led to IR35 being introduced nearly 20 years ago
Victoria Todd, Head of LITRG Team, said: “There is another dimension to this story – the impact on the workers who are working through a limited company for medium and large business in the private sector.
"It is well known that many low-paid workers, such as temporary workers who find work through agencies and other intermediaries, are only in limited companies in the first place at the behest of the intermediaries that engage them, as this saves those businesses employers’ NIC and often provides them with an additional revenue stream through providing the worker with ‘accountancy services’.
”If the intermediary concludes that the new rules effectively neutralise the tax advantages of these arrangements, it is likely that workers will be pulled out of limited companies. If what we saw after the public sector changes is anything to go by, they could then find themselves encouraged into other dubious arrangements that help engagers protect their profitability.
"In addition, HMRC must be aware that the abandonment of limited companies could create some very messy compliance issues – made worse by the fact that often the workers involved have little understanding of how such vehicles operate. They cannot separate out their own affairs from that of the limited company. They stand very little chance of closing down the limited company correctly.
”If businesses do respond by forcing the abandonment of limited companies, it could happen on a large scale with many workers affected. The Government will need to be prepared and will need to consider their response very carefully.”
For more information about the controversial IR35 rules; and other aspects of IR35, see Shout99's News on IR35 section.
For more Budget news, see Shout99's Political News section
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Susie Hughes © Shout99 2018