With the Chancellor of the Exchequer, Philip Hammond, having announced that the government will publish its Autumn Budget on Wednesday 22nd November, there has been much speculation as to how private sector workers, such as those using an Aviation Recruiter like TARCG, could be affected. |
One recent suggestion has been that IR35 rules dictating how freelance and contract workers are to be taxed could be extended from the public to the private sector.
Rules that have caused no shortage of controversy
IR35 is legislation that aims to combat tax avoidance by workers who provide their services to clients via an intermediary, such as a limited company, and who would be an employee in the absence of such an intermediary.
Her Majesty’s Revenue and Customs (HMRC) refers to such workers as “disguised employees”, with those caught by IR35 required to pay income tax and National Insurance Contributions (NICs) as if they were employed. This can have a significant impact on the given worker, potentially reducing their net income by as much as a quarter.
Since IR35’s introduction in 1999, it has been criticised by many tax experts and businesspeople as badly conceived, poorly implemented by HMRC and causing unnecessary costs and hardships for genuine small firms. Nonetheless, the Treasury has dropped its strongest hint yet that IR35 reforms presently affecting the public sector will be brought into the private sector.
Government seeking “fairness between the public and private sector”
Financial secretary to the Treasury, Mel Stride, said to the Financial Times: “It is not just the issue of tax that we might not be collecting that we should be collecting, it is also an issue of fairness between the public and private sector.”
He declined to provide any more detail on specific plans to bring the IR35 reforms into the private sector, or to confirm that they would be covered in the Budget, but did suggest that opposition to such a move from employers would not unduly deter the government.
The latest IR35 rules came into effect on 6th April, and require public sector employers to deduct tax and NICs from contractors’ pay at source, instead of allowing them to defer and claim expenses.
Stride hailed what he described as a “behavioural change” in the public sector since the introduction of the reforms, with 90,000 more workers being taxed as employees in the first three months, and far fewer workers offering their services through service companies.
However, he lamented that “the private sector is able to carry on with that behaviour unchecked.”
Could you be hit by changes to IR35 law?
While the extension of the IR35 changes into the private sector would address concerns about disparity between the sectors raised by some in the public sector, it could also see a repeat of the confusion that greeted the introduction of the rules.
One poll by the Association of Professional Staffing Companies (APSCo), for instance, found that 45% of recruiters had seen evidence of contractors increasing their rates since the change to the rules.
However, HMRC has argued that the regulations are simply designed to ensure that relationships “mirroring” the relationship between an employer and its employees are taxed accordingly, adding that 90% of contractors had previously classified themselves wrongly.
But with a Treasury spokesperson having said that it could not “speculate on tax policy ahead of fiscal events”, it remains to be seen whether any extension of the IR35 rules’ applicability could be introduced in 2018, or might not be affecting private-sector aviation professionals for some time yet.
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