Government to consult on tax avoidance in the private sector

Tax and Revenue

May 18
09:45 2018

A new consultation to make sure that people who effectively work as employees pay the right amount of tax has been launched today.

As announced at the Autumn Budget, the consultation will specifically look at how to increase compliance with the existing off-payroll working rules. These rules mean that contractors such as IT and management consultants who work through their own company but are in practice employed by a third party, pay the right tax as employees.

Evidence suggests that the taxpayer could be missing up to 1.2bn a year by 2023 as a result of people getting the rules wrong, and incorrectly paying tax as if they were self-employed. The consultation will look at how to make these rules work better. The genuinely self-employed will not be affected.

Financial Secretary to the Treasury, Mel Stride, said:

Its very important that we recognise the hard work of contractors across all sectors, who contribute to our growing economy.

But its also right that we have a fair tax system that balances efficiency and simplicity for taxpayers, while also supporting our vital public services.

Thats why were consulting carefully and welcome a wide range of opinions and evidence on how to tackle non-compliance.

Last April, the government reformed off-payroll working in the public sector, successfully increasing compliance. The change has meant 410 million in additional revenue for the taxpayer. This consultation includes the option of extending those reforms to the private sector, although no decisions have been made. It draws upon the lessons from the public sector change, by consulting on how the rules can be improved for the private sector, and includes alternative options for addressing non-compliance.

The government welcomes responses to the consultation, which can be found on our website

Notes to Editor

  • Existing off-payroll working rules (IR35) were introduced in 2000 and are intended to stop individuals avoiding employment taxes by working through their own company. This affects contractors including IT consultants, management consultants, and project managers.

  • It is estimated that in 90% of cases within the private sector, the IR35 rules are not applied correctly.

  • These rules do not affect the genuinely self-employed.

  • In April 2017, the government reformed the off-payroll working rules for engagements in the public sector. Public authorities are now responsible for determining whether the rules apply and deducting and paying the appropriate taxes.

  • External research on initial implementation shows that the reform has had relatively little impact on projects or vacancy filling in the public sector.

  • The consultation

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