Opinion Former Article

IR35 small business exemption welcome but what about the workers?

Campaigners are concerned that anti-avoidance changes announced in today’s Budget could leave low-paid workers in the lurch.

The Chancellor announced today the extension of off-payroll working ‘IR35’ rules to the private sector. HMRC have said that they will not look at prior IR35 compliance as a result. However the Low Incomes Tax Reform Group (LITRG) warn that the changes are likely to see some low-paid workers pulled out of limited companies, leaving them with messy compliance issues that could follow them around for many years.

Under the changes announced, businesses will become responsible for assessing an individual’s employment status. There will be an exception for small businesses, alleviating them from the huge administrative burdens that come with the changes, that even large public sector bodies seem to struggle with.

Victoria Todd, Head of LITRG Team, says:

“We need to make sure that these changes don’t leave low-paid workers in the lurch.

”We appreciate the Government have concerns around IR35 compliance, which we share; and we welcome HMRC’s commitment that they will not use these changes as an opportunity to look into historic compliance issues.

”An exemption for small businesses is welcome, particularly as HMRC’s Check Employment Status for Tax tool is not the Holy Grail that they think it is. Indeed, this is something we called for in our response to the consultation.

”But there is another dimension to this story – the impact on the workers who are working through a limited company for medium and large business in the private sector. It is well known that many low-paid workers, such as temporary workers who find work through agencies and other intermediaries, are only in limited companies in the first place at the behest of the intermediaries that engage them, as this saves those businesses employers’ NIC and often provides them with an additional revenue stream through providing the worker with ‘accountancy services’.

”If the intermediary concludes that the new rules effectively neutralise the tax advantages of these arrangements, it is likely that workers will be pulled out of limited companies. If what we saw after the public sector changes is anything to go by, they could then find themselves encouraged into other dubious arrangements that help engagers protect their profitability.

"In addition, HMRC must be aware that the abandonment of limited companies could create some very messy compliance issues – made worse by the fact that often the workers involved have little understanding of how such vehicles operate. They cannot separate out their own affairs from that of the limited company. They stand very little chance of closing down the limited company correctly.

”If businesses do respond by forcing the abandonment of limited companies, it could happen on a large scale with many workers affected. The Government will need to be prepared and will need to consider their response very carefully.”

Notes for editors
1. Low Incomes Tax Reform Group

The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk
Out of hours contact: George Crozier, 07740 477 374)

More Articles by Chartered Institute of Taxation (CIOT) ...

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