Halesowen-based chartered accountancy firm Nicklin LLP is advising that the Government is planning a crackdown on a tax loophole which allows contractors and freelance workers to avoid paying income tax on their salaries.
Under existing IR35 rules, a contractor or freelancer working for a range of organisations can set themselves up as a private services company, meaning that they pay corporation tax on their income, rather than being classed as an employee of an organisation they are working for, which would make them liable for higher rates of income tax and national insurance.
However, the Government wants to close this loophole as it looks for ways to claw back more tax. The Treasury proposes that contractors or freelancers are taxed at source by the organisation they work for, in certain circumstances, rather than taking payment as a company.
Harvey Owen, partner at Nicklins, said: “This would mean that any executive or key employee falling into the targeted category would have to pay income tax and national insurance, even if they are contractors.”
A decision is expected in next year’s Finance Bill.