HM Revenue & Customs (HMRC) has published new guidance on changes to off-payroll working rules coming into effect in the private sector next year.
The reforms come after the Government found that a significant number of contractors were working as if they were employees, but benefitting from the tax reliefs afforded to self-employed individuals.
According to HMRC, an individual with an income of £50,000 who works through their own company will contribute around £6,000 less in tax compared to someone in employment.
The new rules, coming into effect in the private sector from April 2020, apply if a worker provides their services through an intermediary – usually the worker’s own personal service company (PSC).
The changes will see the responsibility for ensuring the correct tax is paid fall to the employer, rather than the worker, to “ensure consistency and compliance across the labour market”.
According to official figures, just one in 10 people who should be paying tax under the current off-payroll working rules are doing so correctly.
Commenting on the changes, HMRC said: “These reforms will ensure the right amount of tax is collected. This will level the playing field between those who were applying the rules and those who were not.
“This reform does not prevent people from working through their own limited companies and does not affect the self-employed. Contractors who are following the existing rules correctly will feel little impact.”
Click here to access the guidance.
For help and advice on off-payroll working rules, please get in touch with our expert team.