Buried in the Budget:Freelance company tax rules ” shake up ” on way

Almost entirely missed by the press coverage of the Budget this morning, George Osborne, the Chancellor, announced a radical review of  freelance  tax employment rules through what is known as IR 35.

Not mentioned in his speech – the changes were hidden away in the full Budget document. The full story of this change written by Alison Winward  and Frederika Whitehead is on the Exaro news website  at http://www.exaronews.com.

For those worried by the changes to the IR 35 rules   the official Treasury document uses the dreaded word simplification – the same phrase used by the Chancellor to impose a ” Granny Tax ” – a  future loss of  income for 4.5 million pensioners  by freezing tax allowances for most of  those who have  incomes above the state pension. Like pensioners this could affect millions of people.

The full section in the Treasury  reads:

 ” Personal service companies and IR35

 The Government will introduce a package of measures to tackle avoidance through the use of personal service companies and to make the IR35 legislation easier to understand for those who are genuinely in business.

This will include: strengthening up specialist compliance teams to tackle avoidance of employment income; simplifying the way IR35 is administered;

and subject to consultation, requiring office holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged. (Finance Bill 2013)”

Basically Hmrc are giving a warning that the  wheeze that enabled Student Loans Company chief Ed Lester to hold one official position in Whitehall, will be banned everywhere. It will also effect local government, the NHS and now the private sector, as people won’t be able to claim it as freelance earnings through a  personal services company. They will have to go through PAYE and pay national insurance.

There is at least a year’s grace before this happens – as legislation is planned for next year’s finance bill – and implementation could be delayed until 2014.

In the meantime the small print announces a crackdown from Hmrc on freelances who use this method. The revenge of Danny Alexander, chief secretary of the Treasury, who missed the whole Ed Lester arrangement when he personally approved all high paid Whitehall staff, looks like being rather more widespread than people anticipated.

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