By Greg Guilford
CEO
HR Solutions
IR35 rules were introduced to stop tax abuse. The IR35 rules first came into force with the Finance Act 2000 with the aim of preventing contractors from avoiding paying their dues by drawing a tax-free salary from a company structure which they had created for that precise purpose. According to HMRC, someone earning £100,000 over the period of a year would on average pay around £34,000 in employment taxes. By not complying with IR35, that person could create a structure where they only pay £13,000.
IR35 and the public sector
Responsibility for determining IR35 status lies with the public sector hiring organisation rather than the worker. Changes to IR35 came into force in April 2017, with the Finance Act 2017, which introduced reforms that resulted in public sector contractors being taxed directly for more assignments. Changes to the IR35 regulations have already cut the pay of numerous contractors, with many deciding to avoid working in the public sector. The change in responsibility has led to more organisations becoming reluctant to classify workers as external contractors. If the organisation determines that IR35 applies to the assignment, they must deduct tax and NICs from contractors’ pay at source, rather than allowing them to defer and claim expenses. HMRC maintains that workers are only required to pay tax that’s due.
IR35 and the private sector
In May 2018 HMRC announced its long-awaited consultation on extending off-payroll working reform to the private sector. To say the prospect of tax changes to the private sector is unpopular is an understatement. PRISM is the trade body representing umbrella companies. Its CEO, Crawford Temple, believes that an extension of IR35 to the private sector would be ‘a complete disaster’. However, the ongoing post-Brexit uncertainty and the current fragile position of the Government lessens the likelihood of the date of implementation going beyond 2019.
IR35 and Brexit
As EU exit negotiations continue, the UK’s attractiveness as a business location is crucial. Extending IR35 tax changes to the private sector could seriously undermine this. HMRC’s recently launched consultation document ‘Off-payroll Working in the Private Sector’ means that you can respond and ask questions up to 10 August 2018.
If you would like more information about outsourced payroll and HR services call HR Solutions on 0844 324 5840 or visit www.hrsolutions-uk.com.