- Controversial new rules introduced in the public sector in April may be extended to the private sector. The rules are part of a crack down on tax avoidance, and targets self-employed workers who are deemed not to be genuine freelancers. The move would effect those being paid through personal service companies, an arrangement which is taxed at a lower rate than those classed as company employees.
LONDON – The Treasury is considering extending controversial new self-employment rules to the private sector as part of a crackdown on tax avoidance.
In April, new rules were introduced to target temporary public sector workers employed “off payroll,” who were deemed not to be genuine freelancers. Those who would have been classed as employees if they were providing their services directly, rather than through personal service companies – an arrangement which is taxed more lightly – lost a substantial amount of their take-home pay as a result.
Last week, financial secretary Mel Stride told the Financial Times there was “an issue of fairness” regarding whether public and private sector workers should be subject to the same rules. If the rules are extended to the private sector, thousands of freelance workers could also be subject to this tax crackdown.
The cost of non-compliance in the private sector is estimated to rise to £1.2 billion in lost taxes a year by 2022/23. HMRC has been under pressure in recent years to increase tax receipts and crack down on tax avoidance and evasion.
According to Stride, in the three months following April’s public sector reforms, 90,000 additional workers were taxed as employees.
“The public sector has undergone a behavioural change which means we are seeing far fewer [workers] offer their services through service companies and yet the private sector is able to carry on with that behaviour unchecked,” Stride told the Financial Times.
“It is not just the issue of tax,” he said, “it is also an issue of fairness between the public and private sector.”
In August, a survey by insurance broker Qdos Contractor showed that the prospect of the rules being extended into the private sector was contractors’ top concern: 48% of the 777 contractors surveyed reported they worried about the prospect of this change most, beating concerns including Brexit and issues scaling up as business.
Responding to private sector fears, Stride said the government was very very pro business,” and recognised the importance of encouraging business expansion and entrepreneurship “particularly in these uncertain times.” But, he told the Financial Times, “it is very important if taxes are due that they are paid.”
Mark Groom of “Big Four” firm Deloitte told the newspaper the Treasury may run a consultation on the plans. He said a big publicity campaign would be required. “Otherwise, if it were to be introduced, it seems destined to fail, or create havoc, or both.”