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Chancellor should use Budget to change proposed PAYE legislation

The Chancellor should use the Budget to drop new Pay as You Earn (PAYE) legislation, says Robert Salter.

In the last few days HM Revenue & Customs (HMRC) have lost another case on the issue of IR35 – the legislation which applies to people, who are allegedly hiding their ‘deemed employee’ status and operate through a Personal Service Company (PSC), rather than simply as a sole trader in their own name.

The Government has consistently claimed that some 90% of freelance contractors operating through PSCs don’t account for PAYE and National Insurance Contribution (NIC) correctly and if they did, it would bring in another £2 billion to the treasury.

It is for this reason that the Chancellor plans to bring in legislation to transfer PAYE obligations to the clients of PSCs from April 2021. However, he needs to fix this before the Budget. There is absolutely no point in having court case after court case on the hope that he can make this legislation work.

The reality is that HMRC actually lose around 75% of the cases that they take to court in this area. So, the suggestion that they can legitimately get £2 billion more in lost revenue per annum by simply transferring the PAYE obligation to clients of PSCs won’t work.

Rather than blundering through the existing (and very complex and unclear) regulations, the Chancellor needs to consider other ways of raising funds from PSCs.

The Chancellor could increase the corporate tax rate for PSCs by 2% or 3% which would bring in a large part of the £2 billion and minimise complexities for business.

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