The Low Incomes Tax Reform Group (LITRG) is concerned that the UK Government’s intention of extending the “off-payroll” rules to the private sector will have a significant impact on people engaging in low-paid work.

The LITRG welcomed the fact that small businesses will be exempt from the rules, which means that they will not have to deal with the administrative burden of complying with the legislation. However, some low-paid workers contracting with medium or large businesses may have to abandon their limited companies. If this is the case, then these individuals may have to contend with compliance issues for a number of years.

Many of these low-paid workers do not understand how limited companies work, and they struggle to separate company affairs from their own. As a result, if they do close down their limited companies, then they may not do it properly.

Victoria Todd, Head of LITRG, said: “If businesses do respond by forcing 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.”

Many low-paid workers who operate via their own limited companies only do so because this is the only way that they can secure work. The cause of this is often their clients’ desire to avoid paying employer’s NIC and offering their workers employment privileges or rights. In addition, the employment agency can sometimes earn more money by offering workers accountancy services.