IR35’s totemic role in government anti-avoidance strategies came to the fore in today’s autumn statement as Chancellor George Osborne announced his intention to raise an extra £9bn over the next five years by countering “tax avoidance, tax evasion, fraud and error”
Almost without a pause for breath, the chancellor continued: “We’re going to tackle the growth of intermediaries disguising employment as false self employment, depriving workforces of basic employment rights like the minimum wage in a bid to avoid employer national insurance.”
The autumn statement revealed that the new rules - which have yet to be published - will take effect from April 2014. It estimated they would raise an additional £400m each year.
The initiative was flagged up by AccountingWEB member cfield on Tuesday, following a report on Sky News sourced from Lawspeed.
The government will also seek to extend its current power to force people using tax schemes that have been defeated at tribunal to pay the tax they were trying to save up front.
There were a number of other anti-avoidance measures announced, including a restriction on reallocating partnership profits to non-individual partners and controlled foreign company and group relief restrictions that took effect from 5 December.
The chancellor said he would halve the final period exemption for CGT private residence relief - but no further detail was available in the official documentation about when this would come into effect. From April 2015, capital gains tax will also be introduced on future gains made by non-residents who sell residential property in the UK.
“That will set the cat amongst the pigeons,” said BDO tax partner Philip Fisher in our live autumn statement blog. He and entrepreneur Kate Lester then debated whether the effect would slow the property boom in London, or add to it as foreigners rushed to sell their properties before April 2015.
The BBC’s Robert Peston reported that the tax avoidance measures sounded quite ambitious “and may well be causing jitters in the City”, but the words “intermediaries disguising employment” probably set off even more alarm bells around the country among freelancers and their tax advisers.
Suddenly the rationale for the swift-moving House of Lords inquiry into took on a new significance.
The autumn statement explained that the government supports those who choose to work for themselves and that this should be reflected within the tax system.
“But the government is acting now to level the playing field so that companies cannot use employment intermediaries to disguise employment as self-employment and thus avoid employment taxes and deny employment rights to their workforce.”
Legislation to prevent employment intermediaries from being able to use contrived contracts to disguise employment will take effect from April 2014 and raise around £400m. The legislation is yet to be issued in either consultation or draft form but will involve "strengthening existing legislation to ensure the correct amount of tax and NICs are paid where the worker is, in effect, employed". Expect to see draft Finance Bill 2014 clauses next week, to take effect from April 2014.
On Thursday Simon McVicker, director of policy and public affairs at the freelance lobby group PCG urged the government not to produce legislation that would affect genuine freelancers and their clients. "The last time Government tried to legislate in this area we were left with IR35 - a confusing and inappropriate measure that has affected many thousands of legitimate microbusinesses," he said, in a statement seeking clarification from the government.
The next day, the PCG received assurances from HMRC that the beefed up rules would target mass-marketed schemes where workers were moved en-masse into self-employment, even though they should be employed. "Often the workers are low-paid and unaware that they are being engaged on a self-employed basis until they try to claim employment rights. The measure is designed to stop this from happening," wrote to the PCG.
McVicker said he was encouraged to see HMRC engaging in clear and open dialogue with freelance bodies.
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John Stokdyk sadly passed away in June 2023. He had been with the site since 1999, rising from news editor to editor in chief, global editor and head of insight. As a roving editor, he investigated the profession's use of technology around the world. He devoted his spare time to technology history and an oddball collection of stringed...