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’.

It 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.
• Please breakdown how the entire arrangement works, including the pay rate, fees being charged, and their relevance. Have you deducted tax and NICs?

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. HMRC considers income tax and NICs as tax avoidance and will challenge it.
• Those using schemes are likely to end up with a bill for tax and NICs, interest on tax paid late.
• 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. HMRC do not approve tax avoidance schemes.