An HMRC presentation on off-payroll workers reveals that the taxman believes that 20,000 contracting professionals are not paying the correct amount of tax under IR35 rules.

The presentation was obtained by IT news outlet The Register on Friday last week. Journalist Kat Hall found that UK IT professionals contracting in the public sector may bear the brunt of the Government’s plans to clamp down on self-employed workers, who it believes are not paying the right employment taxes.

A consultation was launched by HMRC earlier this month to garner industry views on Government plans to amend IR35 intermediaries legislation. The proposed changes will shift responsibility for tax compliance from individual contractors to recruitment agencies or public sector organisations.

The Association of Independent Professionals and the Self-Employed (IPSE) says that two-thirds of its 22,000-strong membership is composed of IT contractors, many of them working in the public sector.

While HMRC claims that just ten per cent of the contractors in the public sector who should apply the rules actually do, IPSE maintains that the proposed rule changes will deter highly sought-after, highly skilled contracting professionals from working in the public sector altogether. IPSE also fears that public sector organisations themselves will be less likely to take a chance on engaging contractors, a move that will inevitably hinder their ability to deliver vital projects.

The rule changes arise at a time when the National Audit Office has warned that the Government has insufficient in-house skills to deal with its ambitious digital transformation projects. According to Civil Service Chief Executive John Manzoni, the Government will need “thousands” of extra techies to deliver these projects.

When the Government released a research study earlier this month sampling the attitudes of hirers toward being made responsible for determining IR35 status for self-employed workers, the results were far from positive.

Commenting at the time, Julia Kermode, the CEO of the Freelancer and Contractor Services Association (which represents Umbrella Companies), said that the report revealed a clear general resistance to the proposed shift in tax responsibility.

Temporary staff are relied on by companies for gaining flexible skills and talent on an as-needed basis, which saves money and lowers business risks, Ms Kermode said.

She added: “The conclusions of the report are plain to read – businesses do not support these changes and FCSA echoes their views; any changes would be costly, burdensome, constraining and will ultimately undermine businesses and their relationship with self-employed workers. As a result, businesses will use fewer freelancers or be forced to put them on the payroll and all parties will suffer.”

Ms Kermode concluded: “I hope that the Government listens carefully to the findings of this report and has a rethink.”

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