Individuals who run a personal service company (PSC) could face higher tax bills in the future as HM Revenues & Customs (HMRC) looks to re-evaluate its tax rules.
The HMRC have put forward a proposal to amend Intermediaries Legislation, which could have a serious effect on freelancers. The legislation – often referred to as IR35 – was introduced in 2000 and aims to tackle ‘disguised employment’.
It requires individuals working through an intermediary to pay broadly the same tax and National Insurance Contributions as any other employee, where they would have been providing the same services directly. This mainly refers to personal service companies, which are enterprises where people provide their services usually through their own company.
In HMRC’s latest discussion document they say there is a “growing body of evidence which suggests there is significant non-compliance with the current rules.”
They point to the fact that the number of those paying tax under IR35 has remained fairly static, while the number of PSCs has increased dramatically from 200,000 PSCs in 2011-12 to 265,000 in 2012/13 – a number that is expected to continue to grow.
HMRC officials estimate that during 2015, the cost of non-compliance regarding IR35 will total a staggering £430m.
Contact us today to discuss the tax implications for you and your business.
Download our guide to IR35 Personal Service Companies