Off-Payroll Worker Tax Rules: Be prepared!

Knowledge based contractors working in the private sector will hopefully now be well aware that, subject to any possible Government last minute change of heart, new tax rules are coming next April. For many, who are not currently following IR35 rules, this will mean a large increase in the tax they pay; perhaps tens of thousands more each year. If this was not bad enough, there was also the worry that being caught by these new rules, after not having previously followed IR35 rules, could increase the chances of HMRC targeting you for special review of your past IR35 compliance. In a briefing note issued this week, however, HMRC says it has taken the decision that it will only use information resulting from these changes to open a new enquiry into earlier years if there is reason to suspect fraud or criminal behaviour.

HMRC have also recently announced ‘enhancements’ to its Check Employment Status Tool, which end clients will soon be using to self-assess whether or not your personal service company must follow these new off-payroll working rules. These changes will go live towards the end of this year.

To emphasise the back story to these super unpopular changes, HMRC has revealed that the expected additional tax yield is £3bn over the next 4 years.

If you are a contractor working in the private sector, best advice is to run your contractual terms and actual work practices through the HMRC online tool now, to see if change is to be expected. If it is, and this outcome is not acceptable to you, then your options now include:

• Trying to change your engagement terms to try and fall outside of these rules,
• Going on the books of the end client,
• Providing services through an umbrella company.

You also need to be prepared to try and avoid a situation where your end client follows an overly-defensive tax administration policy, and taxes all contractors through the new system, irrespective of whether or not the HMRC tool gives a ‘Fail’ result.

Disclaimer - All information in this post was correct at time of writing.