Many of the 170,000 contractors working for their own company will pay more tax this year – and many are expats who may not yet be aware of the new rules.
HM Revenue & Customs has revealed the number explaining how workers tax will be assessed if they are ‘off payroll working’.
The rules are commonly known as IR35 and have been around for more than a decade.
Recently, they were applied to public organisations employing consultants or contractors on fixed term contracts.
Now, they are extending to cover private businesses and organisations from April 6, 2020, as well.
The result, says HMRC, is an extra £3.1 billion in tax going into Treasury coffers by 2024.
How do you know if you are affected?
The issue is contractors working for their own company. They say they are entitled to tax breaks and HMRC says they should pay the same tax and national insurance as comparable workers because they are hiding behind the corporate façade to disguise their real tax status.
Contractors often split their corporate income with a spouse to keep their incomes below higher tax rates and took dividends rather than salaries to avoid national insurance contributions.
HMRC says 170,000 taxpayers use a company to provide services to 60,000 businesses and organisations with 50 or more workers, with 20,000 recruitment agencies acting as middle men to arrange the contracts.
Small businesses, with turnovers below £10.2 million, a balance sheet total of less than £5.1 million or fewer than 50 employees are outside the rules.
What about expats and IR35?
Whether expats should pay UK tax or not hinges on their residence. If they are merely abroad for a short time to work on a contract and have a home in the UK, it’s likely the new tax rules will apply to them.
Many UK contractors work in the oil and gas sectors, and may be UK-based but unaware of the rule change.
They should seek professional tax advice to make sure that they are following the new rules.