Budget 2017 - PwC comments on the changes in the rules off payroll for personal service companies.
Published at 15:33 PM on 08 March 2017
The Government had previously confirmed that from 6 April contractors who work for public sector bodies via certain intermediaries, such as 'personal service companies', some partnerships and other corporate entities, will see income tax and national insurance taken by these public bodies at source before paying their fees. There was some concern that it would be extended to private sector employers from April 2018 and the fact that this has not happened is to be welcomed, however, it may mean a loss of contractors from the public sector to the private sector over the next year.
John Harding, Tax Partner at PwC, said:
"The change to these rules will hit a wide range of contractors including locums, nurses, IT consultants and interim managers working in the public sector. All those impacted could see their take home pay cut significantly. Given the sums at stake and the fact that these changes have not been extended to the private sector, contractors will increasingly look to either increase their rates to compensate for these changes or simply move to work in the private sector.
"Practically, these changes are causing a huge amount of confusion for all impacted by the new rules, with public sector bodies needing to identify their contractors, determine their status, update contractual terms and make sure their invoicing and systems processes are updated to handle the changes. In addition, it might also create pressure on public sector bodies to evaluate the size and shape of their workforce and how they manage this going forward
"Given the Chancellor's repeated focus on fairness in the tax system it would not be a surprise if in the next Budget the Chancellor extends these new rules to contractors in the Private Sector or perhaps introduces even more radical changes in the taxation of work. As HMRC tightens the rules around the tax treatment of constantly evolving employment arrangements , it will be important to balance safeguards for employees with the flexibility in employment arrangements that many desire"
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