IR35 Reform: Changes to Tax Rules for Off-Payroll Workers

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IR35 New Self-Employment Tax RulesIn April 2017, HMRC reformed the rules for intermediary employment in the public sector. The aim of this reform is to ensure that freelance workers and the companies that employ their services are paying the correct amount of tax they owe to HMRC. Before this change, it was the responsibility of the worker to decide if the IR35 rules applied to their business. Now it is the responsibility of the public authority acting as the employer to make that decision and to confirm that they are both obeying the law.

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Failure to comply with these rules can be considered as tax evasion, which means that severe penalties can be applied by HMRC if the rules have been intentionally ignored.  The financial secretary Mel Stride recently suggested that this reform could be extended to the private sector in the future, so it is a good idea for all self-employed freelance workers and any agencies hiring them to make sure that all such work statuses are properly disclosed to HMRC.

Check Your Employment Status for Tax

How can you find out which tax rules apply to your status as an employer or an employee? To aid you in this process, HMRC has implemented a fast and easily accessible service known as CEST (check employment status for tax).  You can use this anonymous service to check the status of public and private work engagements, and it does not store the information that is provided. CEST is the only service result that will be considered conclusive and accepted by HMRC. If your situation is too complicated for CEST to provide a conclusive status on which tax rules apply to you, you will need to contact HMRC directly with any IR35 enquiries on 0300 123 2326. Queries can also be sent to HMRC by email or post.

If you are self-employed and work for other companies through your own personal service company, you must report your employment status to HMRC. Contact the Self Employed Helpline for advice by phone on 0844 453 0165, or find the specific services you require help with on our Self Employed Helpline page (including registering a new business and queries about tax and National Insurance).Whether your services are hired in the public sector and the IR35 reform currently applies to you, or they are hired in the private sector, you should always check that the person who is responsible is obeying the rules set by HMRC to avoid any penalties.

How Does the IR35 Reform Affect Self-Employment?

The crackdown on non-compliance has caused some controversy with the people whose earnings have been impacted as a result of the updated tax rules. However, HMRC’s tax assurance commissioner Jim Harra has pointed out that contractors avoiding paying the tax they rightfully owe is detracting from funding for public services such as hospitals and schools. Millions of pounds a year are lost to tax avoidance, so it is important that people are paying the right amount of tax. Those who are paid through personal service companies will no longer be taxed more lightly than traditional employer-employee payment arrangements. The IR35 reform for self-employment in the public sector and any further reforms applied to the private sector will continue to create a fairer employment market for everyone.

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