Expat Contractors May Fall Into IR35 Tax Net

Tens of thousands of contractors working for their own companies face pay cuts and extra tax bills from April.

Workers often choose to take contracts through their own company as a tax-efficient way to pay themselves.

But from April, the government is demanding contractors are treated as workers on their employer’s payroll under revised rules called IR35.

This will immediately stop them billing through the contractor company and paying themselves in dividends to reduce national insurance bills and manipulating the income tax they pay by sharing contract income with spouses or partners.

The new rules will impact expat workers with a company contracted to a UK employer.

Conflict in courts failed to resolve tax issues

For instance, oil and gas contractors contracted to a UK employer working abroad are likely to be moved to on the payroll with tax and national insurance deducted at source like any other worker.

The rules have changed after years of conflict between HM Revenue & Customs and contractors in the courts over the difference between self-employment and disguised employment.

HMRC argues that if a contractor does the same work as an employee under the direction of an employer, then they are not self-employed and should pay tax and national insurance as PAYE workers.

The rules also make taking on contractors more expensive for employers as they must pay extra national insurance as well as providing holiday pay, sick leave, pensions and other benefits.

Small businesses escape tax changes

Contractor lobby groups are trying to encourage MPs to sign a motion that calls for the scrapping of the new contractor laws, but HMRC and the government are eyeing extra revenue for the Treasury from April.

HMRC has already applied the IR35 legislation to the public sector, drastically reducing the number of contractors working off-payroll, with the new rules netting private employers.

The IR35 rules will only apply to medium and large businesses  as smaller organisations are exempt. These are businesses with a turnover of less than £10.2 million, a balance sheet of less than £5.1 million and with 50 or fewer employees.

For contractors unsure about their employment status, HMRC provides an online checker

Find out more about off-payroll working and IR35

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