Off-Payroll Working – IR35
The off-payroll rules will apply to work done under private sector contracts.
The government has put on hold on IR35 tax reforms for a year in the wake of coronavirus crisis.
Officials suggest that ‘This is a deferral, not a cancellation’.
HMRC issued guidance on ‘Tax avoidance schemes aimed at contractors and agency workers’ ahead of the extension of the off-payroll working rules to the private sector.
HMRC are concerned about schemes that use umbrella companies and which claim to increase take-home pay.
HMRC is advising taxpayers to:
- Use the online tax calculator to check what their net pay should be after-tax and NICs.
- Compare this figure with your current take-home pay.
- Ask the person offering the work for a breakdown of how the whole arrangement works, including pay rate, fees being charged, and what they relate to, whether tax and NICs have been deducted.
- Compare the figures to see if the tax is being paid or avoided under the scheme being considered.
The guidance points out that:
- Any scheme offering better take-home pay by converting income into something else (e.g. a loan), and which results in not paying income tax and NICs, is considered by HMRC as tax avoidance and will be challenged.
- Those using such schemes are likely to end up with a bill for tax and NICs, interest on tax paid late and possibly penalties.
- Any fees paid to the promoter of the scheme are unlikely to be recoverable if the scheme does not work and may amount to 10% of the gross pay.
Workers should be wary of employers or agencies who tell them they must use a particular scheme in order to get work and of promoters who tell them that the scheme is ‘HMRC approved’. HMRC do not approve tax avoidance schemes.
