Self-employed expat contractors based in Britain but working on projects overseas face a crackdown to make sure they are paying the right amount of tax.
A government consultation is looking at how to bring UK taxpayers who work as contractors into ‘off payroll’ tax rules.
These rules – commonly known in the contracting industry as IR35, after the HM Revenue & Customs term for them – will impact contractors like IT consultants, engineers, oil workers and management consultants.
These contractors typically work through their own limited company but are often ‘disguised’ employees of another business. They save tax by taking small salaries and high dividends which are often shared with a non-working partner.
The aim is to determine if they are really employees, and if they are, to make sure they pay the correct level of income tax and national insurance contributions.
Only 10% pay the right tax
The Treasury estimates that only 10% of contractors pay the right amount of tax, costing the country hundreds of millions of pounds in lost revenue every year.
The government says the tax and NICS paid by genuine self-employed workers will not change.
Financial Secretary to the Treasury Mel Stride said: “It’s important that we recognise the hard work of contractors across all sectors, who contribute to our growing economy.
“But it’s also right that we have a fair tax system that balances efficiency and simplicity for taxpayers, while also supporting our vital public services.
“That’s why we’re consulting carefully and welcome a wide range of opinions and evidence on how to tackle non-compliance.”
Unfair tax advantage
The government has already tackled off-payroll working in the public sector, with several high-profile BBC personalities having to pay large sums in unpaid tax.
The reform has raised £410 million, according to the Treasury.
Existing off-payroll working rules (IR35) were introduced in 2000 and were intended to stop individuals avoiding employment taxes by working through their own company.
“These rules ensure that people working through a personal service company who would have been employees if they had been engaged directly, pay broadly the same tax and national insurance as if they were employed,” said a Treasury spokesman.
