Chancellor of the exchequer Philip Hammond has pledged to tighten up rules relating to the activities of self-employed contractors and companies who hire them within the UK’s private sector.
The rules are known as IR35 regulations and they have already been in effect in relation to public sector contractors since 2017 but are now set to be extended to cover all medium to large businesses from April 2020.
The stated aim of the legislation is to deter employers from attempting to reduce their tax liabilities by engaging with certain individuals as self-employed contractors rather than as employees.
A considerable number of engineers, consultants and IT contractors are likely to be impacted by the government’s recently announced rule changes, with the end result expected to be an increase in revenues being taken by HMRC on an annual basis.
Critics have said that the expansion of IR35 legislation will have negative consequences for a large number of taxpayers but the Treasury’s position is that its decision on the matter will not impact people who are genuinely self-employed.
The intended targets of the expanded rules are said to be people who work effectively as employees of medium or large companies but pay less as income tax and National Insurance contributions (NICs) by presenting themselves as self-employed for taxation purposes.
The Treasury has said: “It is fair that two individuals working in the same way pay broadly the same income tax and NICs, even if one of them works through a company.”
The government department has further explained that the reforms being introduced as of April 2020 will not be retrospective and are only designed to help HMRC ensure “businesses comply with the reform” going forward rather than to aid them in focussing on historic cases.
Changes to the off-payroll working rules within the public sector are estimated to have brought in an extra £550 million to the public coffers since their introduction in 2017.
Responsibility for determining who should be considered as an employee and who can rightfully be hired as an external contractor from 2020 onwards will fall to the companies involved.
However, the IR35 rule changes will not apply to the smallest 1.5 million businesses operating around the country, the Treasury has made clear.