Award-winning Midlands firm, Salhan Accountants, is calling on contractors and freelancers to recognise the changing nature of tax in regards to the IR35 rules.
The Government has announced that it will consult with the public on new tax standards that would reinforce compliance of the existing IR35 rules for contractors working in the private sector.
The new consultation will explore compliance with the existing ‘off-payroll’ working rules – also referred to as IR35 – in relation to contractors such as IT and management consultants who work in the private sector through their own Private Service Company but are in practice employed by a third party – a practice sometimes referred to as disguised employment.
HM Revenue & Customs has estimated that in 90 per cent of cases within the private sector the IR35 rules are not applied correctly, which could cost up to £1.2 billion a year in lost revenue by 2023 if action is not taken.
Salhan Accountants’ Director Dr Anjulika Salhan said: “Freelancers and consultants working in the public sector will already be extremely familiar with the IR35 rules, as will those bodies that use their services.
“The latest rule for these bodies, introduced in April, requires public authorities to determine whether the rules apply and pay the appropriate taxes. However, the extension of these rules to the private sector could have serious repercussions for those working through a Private Service Company as well as those that employ them.”
She explained that those paid via a Private Service Company paid Corporation Tax, while as those directly employed typically pay income tax and national insurance, which explained why the Revenue stood to lose so much if it didn’t amend the rules.
Anjulika stressed that the IR35 rules were not intended to affect the genuinely self-employed workers, but that confusion stemming from the complexity of the rules often left people and employers unsure of what they should be paying.
“The IR35 rules are complex, but regardless of this the Revenue must enforce them and seems to be taking action now to ensure those working in the private sector are treated equally to those in consulting in the public sector,” she said.
“Those who are unsure whether they are affected by IR35 should seek advice immediately, as failing to meet the rules could result in significant penalties.”
