Tax advisers have been warned they may need to review their clients’ pay structures after the government announced a clampdown on tax avoidance via personal service company use.
At yesterday’s Budget, chancellor Philip Hammond announced the government's intention to extend its clampdown on off-payroll working to larger businesses via the IR35 rules. The policy will net the Treasury's coffers £3 billion, documents show.
Off-payroll working rules were introduced in 2000 and ensure that individuals who are self-employed and work through personal service companies (PSCs), who would be regarded as employees if directly engaged, pay 'broadly' the same employment taxes as if they were employed.
Last year the government introduced reforms in the public sector to address what it called 'non-compliance' in the public sector by shifting responsibility for determining whether the rules apply from an individual's PSC to the public sector engaging them.
Many BBC workers have been hit by the government’s clampdown on alleged tax avoidance through PSCs, with reports around 200 BBC presenters have been probed by HM Revenue & Customs (HMRC) over their use.
However, further reforms announced yesterday extend the measures to medium-sized and large businesses in the private sector, meaning many consultants may also be affected. The new rules will be effective from April 2020.
In documents published alongside the Budget speech, the Treasury said it hoped this additional approach would net its coffers an additional £3 billion, with a behavioural impact that would initially reduce its income by £155 million in 2018/19 and 2019/20, before an anticipated subsequent net increase.
Vince Smith-Hughes, director of specialist business support at Prudential, said the policy would result in remuneration reviews.
'The announcement on IR35 could represent a tax increase for some contractors, necessitating advisers and accountants to review remuneration structures for the people affected,' he said.
'There may be some devil in the detail but it seemed a broadly positive Budget for financial planners.'