In recent weeks there have been a number of high profile cases involving civil servants using a tax loophole, which sees them taking payment through a company, to cut their tax bill. Now, the Chancellor is set to hold a review of the so-called IR35 rules.
The IR35 rules dictate whether freelancers or contract workers can receive payment for their work as a company and thereby qualifying for corporation tax rather than the much higher rates of income tax and national insurance.
The Treasury believe over 100 civil servants may have used this loophole to reduce their tax bills, and has unveiled recommendations within this week’s budget, which suggest changing the loophole to ensure any office holder or “controlling persons who are integral to the running of an organisation” is taxed at source by the body for which they work, rather than taking payment as a company.
Under the new proposals, any executive or key employee of an organisation is likely to have to pay income tax on their earnings, even if employed on a contract basis; with the Treasury saying: “This is about putting beyond doubt what the intention of IR35 is.”
Despite announcing the plans this week, a final decision isn’t expected until next year’s financial bill.
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