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Autumn Budget hints at new tax reforms being rolled out across private sector.

Posted by: Ian Piper


In April this year, within the public sector, the responsibility for determining a contractor’s tax status was shifted from the PSC themselves to the end client.

The changes have been wreaking havoc amongst the public sector and have led to mass walkouts of contractors and delayed and cancelled projects; all of which is causing deterioration of public services including the NHS.

This is mainly down to contractors seeking opportunities elsewhere or choosing early retirement rather than risk being classed as “within IR35.”

In contrast, according to government documents, this revamp of IR35 regulations has led to improved levels of compliance within the public sector, which was the main aim of the changes.

This compliance however could be skewed according to the IPSE, who have commented that there is a strong amount of “over-compliance” due to the fact that there is “no liability for saying IR35 does apply”, rather than taking the risk and classing the contractor as outside of IR35.

The tax status changes have not yet been implemented within the private sector; but industry experts believe this could be imminent and it rings true if last week’s budget is anything to go by.

Within the budget under “Income Tax and National Insurance” the subject of off-payroll working in the private sector was addressed - “The government reformed the off-payroll working rules (known as IR35) for engagements in the public sector in April 2017. Early indications are that public sector compliance is increasing as a result, and therefore a possible next step would be to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company. It is right that the government take account of the needs of businesses and individuals who would implement any change. Therefore the government will carefully consult on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reforms, including through external research already commissioned by the government and due to be published in 2018.”

Although the government is planning IR35 changes within the private sector, it appears that they intend to consultant the industry before going ahead, which can only be a positive thing.

However, many industry experts believe that tax reforms for the private sector could cause unprecedented damage to companies hiring for technical skills gaps, hamper flexible working, encourage the hire of non-UK talent overseas and be an economical disaster on a grand scale for UK plc.

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