IR35 clampdown predicted in Budget

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The Treasury is finalising plans to overhaul the tax rules that allow the self-employed “to avoid paying National Insurance Contributions.” according to press reports.

Treasury officials commonly use this kind of language to refer to contractors who set up their own limited companies to take on work. The Budget is likely to announce the new rules.

It is not known if the government will decide to release details of the proposals before the official announcement to gauge the reaction from contractors or whether it will instead decide to introduce a more moderate proposal.

It has long been a concern for contractors in the private sector that the government would look to apply the same IR35 changes that it made in the public sector. The introduction of the new rules into the public sector has been criticised by many freelancers and contractors.

According to the BBC, the Treasury believes that up to a third of the contractors who work via limited companies are really employees and should be paying more tax. Furthermore, the Treasury believes that if no steps come in place to change the rules, then non-compliance could cost HMRC £1.2bn annually by 2023.

The Treasury should eventually say that the responsibility for determining employment status will be with the end-client.

Despite the continued controversy over the introduction of the new IR35 rules to the public sector, HMRC claims that the changes have resulted in the organisation taking in £410m in additional taxes since 2016.