Off-Payroll Tax – The Impact
In April 2017, Government introduced legislative changes to IR35 in the public sector, known simply as the ‘off-payroll rules’. Following the changes, public sector hirers are now responsible for determining the employment status of the contractors they engage, and both they and agencies are liable for any unpaid taxes due to an incorrect assessment.
To avoid the tax liability risk that accompanies an ‘outside IR35’ assessment, many organisations have deemed all their genuinely self-employed contractors to be caught by IR35 and be a ‘deemed employee’ when they are clearly not nor treated as one.
When this happens, the contractor is forced to pay employment taxes without the equivalent employment rights.
Non-compliance amongst agencies, which HMRC has failed to clamp down on, has meant many contractors are also footing the bill for employer’s National Insurance through their limited company.
The Off-Payroll Tax has caused widespread damage to the public sector through poor implementation and misinformation spread by HMRC. The damage was exacerbated by HMRC’s flawed Check Employment Status for Tax (CEST) tool, which was developed to try and help firms assess IR35 status. HMRC has been unable to provide any detailed evidence that the Check Employment Status for Tax (CEST) tool is accurate and recent tribunal evidence demonstrates it often gives the wrong answer!
If you are a permanent employee who can’t understand what all the fuss is about, consider this: being caught outside IR35 means that, although your salary remains the same, you are forced to pay your company’s 13.8% tax bill out of your own salary, and in addition, all of your employment rights are lost.