Off-payroll Working (ir35)
the very low taxes paid in business and the much higher level of taxes paid in employment.
This measure was seen to be very unsuccessful and a succession of tax tribunal cases were determined against HMRC which led to further measures to bridge that gap. Many employment test cases also failed as engagers succeeded in classifying some workers as not employed. At one point HMRC attempted to solve the issue with the use of little-known settlement laws on the grounds that a non-working director whose use of fees and dividends was further watering down the total tax liability was having unreasonable levels of income “settled” upon them, income which HMRC wanted to determine was actually the lawful possession of the working director. This measure also failed in tax tribunals. Further changes occurred when the Government made dividends post-tax, meaning that profits had to be subject to Corporation Tax first and then the resulting post-taxed profits could be distributed as dividends. This immediately subjected dividends to a tax charge of, currently, 19% before the shareholder could take their share. A further change allowed a tax free amount of dividends of £2,000 to be received with further dividends being taxed at 7.5% up to the basic rate band, then 32.5% and 37.5% thereafter at the higher rate and additional rate levels. However, whilst this made significant inroads into the perceived unfairness of the system, the Government still did not feel that it represented equality of taxation. COPYRIGHT © 2021 THE CHARTERED INSTITUTE OF PAYROLL PROFESSIONALS In all of these measures it was never the intention to extend the remuneration measures to those self-employed workers who were sole traders. This is because a sole trader is, by the very nature of the term, performing the work directly for the end user. Another reason for the distinction was that sole traders had their net taxable profits taxed as income and paid Income Tax and National Insurance on those profits. They have no shareholding and therefore have no access to lower taxed dividends. They were not considered to be using an intermediary to divert the income into a capital amount upon which much lower taxation applied. In the next part of the government’s drive to impose this equality of taxation between employees and off-payroll workers a new requirement was imposed for those who make payments to external contractors who are fulfilling contracts. This came into effect from 6th April 2017 within the public sector and was to be implemented from 6th April 2020 for all other sectors. Since 6th April 2017 all off-payroll workers working within the public sector should be having PAYE and NICs deducted from their fees before the payment is made to them. This is required no matter who is paying the worker, whether that is an agency, the worker’s own business or the public sector body directly. The new rules will not apply if, taking all the circumstances into consideration, the worker would not have been an employee if taken on directly. The PAYE deduction applies to all labour charges and therefore excludes brought in goods and any VAT charged. The invoice submitted by the worker must therefore go through a payroll in order for the necessary deductions to be applied. No printing, copying or r production permitted. The worker will not be permitted to offset any travel and subsistence against their profits for tax purposes, neither will they be able to offset the standard 5% allowance for business costs as permitted under the deemed employment calculation for IR35. This is because the work is deemed to be employment for tax purposes and hence travel is determined to be commuting and not for business. Employer NICs and the Apprenticeship levy will apply to such payments and must be met by the paying engager.
107
Made with FlippingBook - Online magazine maker