Contractors ‘may face higher tax bills under IR35 crackdown’

Posted 25th May 2018 in For Businesses For Workers

Contractors could be forced to pay more money in tax after the government said it will be cracking down on the phenomenon of ‘disguised employment’ in the private sector.

A consultation has opened concerning plans to extend the rules concerning IR35 off-payroll working, something that could affect as many as two million self-employed people.

The Treasury said it wants to target contractors who are using personal service companies to sell their services while claiming at the same time to be self-employed, allowing them to avoid paying income tax and national insurance and their employer to dodge national insurance contributions.

HMRC said many of these workers abiding by freelance laws are actually employees and would be paying higher tax rates were they directly employed by their clients on the payroll.

Financial secretary to the Treasury Mel Stride said HMRC could be losing as much as £1.2 billion a year by 2023 as a result of taxpayers using this loophole and wrongly claiming to be self-employed, up from £700 million this financial year.

Indeed, HMRC estimates that although two-thirds of people who work through companies are genuinely self-employed, a third are working like employees.

Mr Stride stressed that the genuinely self-employed will not be affected and that the hard work of contractors contributing to the economy should be recognised.

“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,” he added.

This consultation will close on August 10th 2018.

The move towards reshaping IR35 has been criticised by stakeholders including the Federation of Small Businesses, which pointed out that making companies cautious about using freelancers and adding to their admin burden could remove the convenience of using genuine contractors in the first place.

According to the Office for National Statistics, the number of self-employed people increased from 3.3 million in 2001 to 4.8 million in 2017. In particular, the number reporting that they work for themselves on their own or with a partner has increased, while those who said they have employees fell during the same period.

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