The British government is steaming ahead with plans to extend its controversial off-payroll working rules to the private sector in draft legislation published today.

From April 2020, medium and large companies will be responsible for determining whether the contractors they hire fall within the scope of IR35 legislation and are liable to pay a higher rate of tax.

This measure is expected to impact 170,000 individuals who work through their own company, who would be employed if engaged directly, said the Treasury.

It is intended to ensure that two people working side by side in a similar role for the same employer pay the same employment taxes.

The change is likely to affect a large number of IT contractors, particularly those who left the public sector in 2017, when the government first reformed the rules.

According to the Treasury, the government has raised £550m in Income Tax and National Insurance contributions in the first 12 months since it was introduced.

In a policy paper, the Treasury said the measure was targeted at individuals who are not compliant with the current rules. "For individuals who were previously non-compliant, adhering to the off-payroll working rules could have an impact on the disposable income available to them and their families."

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The changes will affect individuals supplying their services through an intermediary, such as a personal service company (PSC), who would be employed if engaged directly.

It will also affect medium and large organisations outside the public sector that engage with individuals through PSCs.

Recruitment agencies and other intermediaries supplying staff through PSCs will also be hit by the reforms.

Seb Maley, chief executive of tax insurance provider Qdos Contractor, said HMRC was wrongly under the impression that public sector reform has been a success.

“With the arrival of the draft legislation, it seems very unlikely that there will be a U-turn or a delay at this stage, despite the fact that amid political uncertainty further IR35 reform is short-sighted and unnecessary."

Dave Chaplin, CEO of ContractorCalculator said: "HMRC has not listened. There is no delay, no rights for 'deemed employees', and no appeals process."

The Association of Independent Professionals and the Self-Employed (IPSE) warned the changes could put a huge extra burden on organisations which depend on the use of highly-skilled flexible workers.

'Desperate'

IPSE's CEO Chris Bryce said: "With such short notice, the Treasury has left businesses to choose between access to the skills they desperately need and trying to rush implementation of rules even HMRC itself doesn't understand."

Separately, the government also announced its plans to introduce a new Digital Services Tax under the legislation, intended to reflects the value companies derive from their UK users.

Financial secretary to the Treasury Jesse Norman said: "The UK has always sought to lead in finding an international solution to taxing the digital economy. This targeted and proportionate Digital Services Tax is designed to keep our tax system in this area both fair and competitive, pending a longer term international settlement."

The consultations on the draft legislation will run until 5 September, with measures included in the next Finance Bill. ®