New Off-Payroll Working Tax Rules: Y/N?

1st October 2019

Readers, particularly knowledge based contractors working through their own personal service companies, will hopefully now be familiar with the new ‘off-payroll working’ tax rules being introduced in the private sector on 1 April 2020. These are being introduced as part of the Government’s general strategy over recent years to eliminate tax avoidance, tax evasion, and in this case, tax planning. The rules follow on from what was introduced in April 2017 in the public sector, to strengthen existing IR35 legislation; to increase the tax collected from those whom HMRC consider are ‘disguised employees’.

 

This legislation will, effectively, tax these workers as if they had been engaged directly by the end client under normal PAYE rules. This will stop these workers saving tax by:

  • Taking most of their remuneration as dividends,
  • Income shifting remuneration to a lower tax rate spouse,
  • Leaving profits in the company,
  • Claiming tax relief on many extra expenses,
  • Taxing profits as capital repayments upon company dissolution or liquidation.

 

Super controversial from the start, will these changes now be introduced? With the economy facing the uncertainties of Brexit, possibly (?), and an election, possibly (?), will the Government really still wish to restrict the free movement of high level workers in the UK economy? With a Budget expected sometime in the Autumn, usually October or November, my prediction is that an announcement will then be made to push these changes back a year, or totally cancel them.

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