Press Release dated 23 September 1999
PERSONAL SERVICES PROVIDED THROUGH INTERMEDIARIES
PREVENTING AVOIDANCE: PRESERVING FLEXIBILITY
New rules to tackle tax avoidance using personal service companies and similar intermediaries were published today.
The rules, which were developed following extensive consultation, ensure that the legitimate use of service companies can continue, but they will no longer provide a means to avoid paying a fair share of tax and National Insurance Contributions.
Paymaster General, Dawn Primarolo, said:
"Consultation has confirmed that there is a genuine issue of tax avoidance in this area, and there is widespread agreement that we are right to tackle it. I am determined that nobody should be able to avoid paying their fair share of tax and NICs just because of the way they structure their relationship with their clients.
But we have always recognised that any action must do no unnecessary damage to the flexible labour markets where intermediaries are currently used.
I have therefore asked the Inland Revenue to publish a number of changes to the proposals they distributed in April 1999. These changes mean that we will still be able to stop this avoidance, from next April, but in a way that is more tightly targeted and does not prevent the use of intermediaries where they provide non-tax advantages."
Full details of the revised proposals are attached to this news release. They are also available on the Inland Revenue home page or by writing to Elaine Carey, Personal Tax Division, Somerset House, Strand, London WC2R 1LB.
The Inland Revenue will now take forward the work needed to implement these proposals. They will also work with representative bodies to develop detailed guidance for publication before the proposals come into effect in April 2000.
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DETAILS
Under proposals announced by the Chancellor in the March Budget, people who would otherwise be employees of their clients will no longer be able to avoid paying their fair share of tax and National Insurance Contributions by working through personal service companies and other intermediaries.
The revised approach responds to concerns expressed during consultation that the new rules were too wide in scope, and that they would make it impossible for people to work through intermediaries even if they were prepared to pay the right amount of tax and NICs. The main changes are:
- the rules will rely on the existing tests which are currently used to determine the boundary between employment and self-employment for tax and National Insurance Contributions purposes, instead of the alternative test put forward originally. Using these more familiar tests will help understanding of the new rules and ensure they are targeted on the right people.
- the responsibility for ensuring that the new rules are followed will belong to the intermediaries themselves, not the clients, as originally proposed. As a result of this approach, there will be no need for a certification scheme to allow clients to identify intermediaries who could continue to receive gross payments.
- the intermediaries will be responsible for applying PAYE and National Insurance Contributions to all earnings from relevant engagements, after a limited allowance for expenses and pension contributions.
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NOTES FOR EDITORS
1. The new rules for National Insurance Contributions will be set out in Regulations to be made under powers contained in the Welfare Reform and Pensions Bill. The tax rules will be contained in the Finance Bill next year.
2. The new rules will take effect from April 2000. They will yield about £475 million in tax and National Insurance Contributions in 2000-01, and £300 million in a full year.
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Media enquiries to:
Jane
Ashton
Janis Eate
Leonora Robertson
on: 0207 438 6706/6692/7327
(Out of hours : 07860 359544)
Non-media enquiries to:
0207 438 6420/6425
Click here for the revised proposals attached to this news release.
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