IR35

Thank you for contacting me about personal service companies and tax.

Flexible labour plays an important role in the UK economy. The option to work through an intermediary, including a company, helps support this labour market flexibility. However, it is fair that people should pay the right tax for their circumstances. 

Off-payroll working rules, known as IR35, were introduced in 2000 to ensure that someone working like an employee, but through a company, pays similar taxes to other employees. These rules only affect people working like employees and through a company. HMRC estimate that two thirds of people working through a company are genuinely self-employed. These individuals are not affected by these rules, and that will not change. 

I am encouraged that since April 2017, when the Government reformed these rules for engagements in the public sector, early indications are that this has resulted in an increase in compliance and £550 million in additional revenue. To increase compliance in the private sector, the Chancellor announced businesses will become responsible for assessing an individual’s employment status. As with previous reforms to IR35, this will not affect the genuinely self-employed, nor introduce a new tax.

Following a consultation, I am pleased that the Government has listened to key stakeholders and exempted the smallest 1.5 million businesses from this reform. Furthermore, large and medium businesses will have longer to prepare for these changes, which will be implemented from April 2020.