The taxation of contractors is being reviewed by the government; an extension to the IR35 rules is expected. A set of proposed new rules was announced by the Chancellor in his October Budget statement. These will affect most of our members.
In 2017, the IR35 rules were altered for public sector bodies that purchase from contractors, including from consultants through 'personal service companies'. The decision on whether to deduct income tax and NI from payments became the responsibility of the client (the public sector organisation). This resulted in some public bodies opting to make deductions in almost all cases, to avoid any risk of not having made deductions. This impacted strongly on IC members.
The new regulations will extend those rules to private sector clients, making the client responsible for the decision on whether the consultancy company should or should not have tax/NI deducted at source. The proposed new rules, however, will not apply in the same way as the 2017 public sector rules. Following initial consultations, HMRC and the Treasury are proposing that they are not applied to the 1.5 million smallest businesses; they will be applied to medium and large businesses from April 2020. As we understand it, this means that any medium or large company which places a contract with an IC member’s company will be required to decide whether tax/NI should be deducted from payments. It is not yet clear exactly how the client company will be expected to make that appraisal.
Details of the proposals are given in the Treasury document. Members should note that this document states the views of the Treasury and of HMRC – there are very different views held by many independent bodies.
View the Treasury Document
A further consultation period is to take place soon, and the finalised new rules will be in the Finance Bill expected in Summer 2019. IC intends to contribute to this consultation, and members are invited to send us their views so that we can make an informed contribution to the consultation. Please email email@example.com.