Reforms to IR35 off-payroll working legislation were introduced by HMRC to crack down on disguised employment.
These are people who do the same job in the same manner as an employee but avoid income tax and National Insurance Contributions (NICs) by providing services through an intermediary such as a personal service company (PSC).
Pressure from MPs
Now pressure from the Public Accounts Committee (PAC) group of MPs has forced the tax authority will review the IR35 off-payroll working legislation in response to the committee’s claims there are “structural problems” that need addressing how the tax avoidance rules work in the public sector.
The review aims to provide a cost analysis of the rules to assess whether workers should be counted as employees and taxed at source.
The aim is to ensure that workers providing their services directly to the client pay roughly the same Income Tax and National Insurance contributions as employees. However, HMRC has stated that it would not implement any changes before December 2023.
High levels of non-compliance
HMRC’s plan to review IR35 guidance comes because of criticism in a report in May this year by the PAC.
The report stated that there were high levels of non-compliance with the IR35 rules as a direct result of “poor implementation by HMRC and other governing bodies.”
An area of concern highlighted by the PAC report was that individuals feel that their determination for taxation purposes is wrong, which means they could end up paying more tax.
Worries over double taxation
In response, HMRC stressed that anyone affected should file a self-assessment return and agreed to look at how it can reduce the risks of double taxation.
There has been some backlash against HMRC’s point that if it disagrees with a customer’s self-assessment, the customer has the right to appeal the decision in an independent tribunal.
The cost of a tax tribunal for workers will far outweigh the initial cost of the overpaid tax and can sometimes take up to 10 years to resolve.
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