Whilst it might sound like a good idea, HMRC’s proposals to include a small business exemption from the Off-Payroll rules if IR35 is introduced into the private sector, would simply add further complications whilst encouraging companies to try to circumvent the legislation.
Chris James, head of accounting at JSA Group, says that how the government defines a small business isn’t completely clear.
Mr. James said: “The criteria intended to define small businesses might appear straightforward, but there are numerous factors which can tilt the balance one way or another, and which can confuse even a qualified accountant. The implications of Off-Payroll, in terms of administration and tax risk, may also mean more firms seek to exploit loopholes to maintain ‘small company’ status. HMRC needs to give some serious consideration to this when consulting on the proposals.”
The government announced that it was going to extend the Off-Payroll rules into the private sector in the 2018 Budget. However, one notable exception to this was small companies. This exemption was introduced following warnings that small companies would find the rules placed an unmanageable burden on them. Smaller companies would suffer especially, as they lack the expertise to conduct status assessments.
HMRC’s official response acknowledged the problems facing small companies and said it had “decided that for services provided by small businesses, the responsibility for determining employment status will remain with PSCs.”
Small companies are commonly defined as companies with a turnover of up to £10.2 million, a balance sheet with assets of up to £5.1 million and with employees numbering up to 50.