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23rd November 2017

Budget special – IR35, POTAS and offshore NIC

Stay of execution on expansion of IR35

Contrary to industry expectations and to the relief of many contractors and agencies, the expansion of new IR35 tax rules to PSC contractors working in the private sector has been put on hold – at least for the time being.

In his Autumn Budget on Wednesday, the Chancellor announced that the government will consult during 2018 on the implications of these proposed changes, drawing on the experience of the public sector off-payroll reforms since April. This means it is unlikely to go ahead until at least 2019 or 2020.

Many will no doubt view this as a welcome reprieve but what this announcement makes clear is that the government is committed to moving forward with these changes.

Tax liabilities for promoting tax avoidance schemes

End users or agencies involved in promoting aggressive tax avoidance schemes will be liable for tax if the scheme is then found not to work. Known as POTAS, this significant piece of legislation announced by the Chancellor on Wednesday will come into force in April 2018.

Tackling offshore NIC avoidance

To combat some employers abusing the Employment Allowance, in order to avoid paying the correct amount of NICs often by using offshore arrangements, HMRC are to require upfront security from employers with a history of avoiding paying NICs in this way.

This appears to tackle offshore schemes AND arrangements/models (e.g. the low pay mini umbrella aka ‘m-u-m’ /shell model) where the NIC allowance clearly provides the benefit/saving to the agency customer, whilst the flat rate VAT benefit provides the profit to the payroll provider. A HMRC Spotlight was published on such schemes; the details of which can be found here.

It would seem that HMRC have realised that current anti-avoidance measures are not in themselves sufficient.

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