A new consultation exploring the taxation of contractors working in the private sector may have a significant effect on law firms.
The consultation will look at improving ‘off-payroll’ working rules, known as IR35.
Under these rules, self-employed contractors are assessed to clarify whether they are paying the correct amount of tax.
For example, a consultant lawyer working exclusively for a law firm as if they were an employee, but are being paid through a limited company, may come under IR35 rules and will be asked to pay the correct tax.
In the above example, the consultant may also be asked to pay back tax from previous years.
Similar rules were introduced for the public sector in April last year, which saw a number of organisations and workers appear before a tax tribunal to argue their case.
In one specific case, a BBC presenter was ordered to pay some £419,151 in taxes after the tribunal ruled her contract should have been subject to IR35 legislation. The ruling related to the tax years 2006/07 to 2012/13.
The Government said the move to crack down on public sector taxation has raised around £410 million in the last year alone.
Financial Secretary to the Treasury, Mel Stride, said: “It’s very important that we recognise the hard work of contractors across all sectors, who contribute to our growing economy.
“But it’s also right that we have a fair tax system that balances efficiency and simplicity for taxpayers, while also supporting our vital public services.
“That’s why we’re consulting carefully and welcome a wide range of opinions and evidence on how to tackle non-compliance.”
For more information on how this development might affect you, please get in touch.