Tomorrow the Chancellor will unveil his much anticipated budget, his fourth major fiscal event in 12 months. He is expected to announce a crackdown on the use of Personal Service Companies (PSC). Here an arrangement exists whereby people hired off-payroll have been engaging in many schemes via PSC that have allowed them to avoid paying almost any employment taxes due. Recently the government has indicated that as many as 90% of contractors have been ignoring employment tax rules and with new legislation £400m in additional tax could be collected.
Presently the situation can exist where someone not working as an employee may make thousands of pounds less than their counterpart, doing the same job but not working as an employee. However, whilst the government has indicated they are seeking major changes in the law there has been reportedly something of a disagreement with HMRC. Their major point of divergence comes from the placing of the burden to enforce IR35 rules onto clients. HMRC reportedly believes that this is far too heavy an onus to place on the business community. Furthermore, they do not believe that the figure proffered by the government in relation to possible additional revenue bears any resemblance to reality of what could be recouped. They have also indicated they do not in fact believe there will be any major changes to how PSCs are governed until 2017.
It is not yet clear what exactly George Osbourne will announce tomorrow. Anyone involved in a PSC will be watching closely, with the potential for great upheaval, particularly within the contractor industry.