Sole traders and the self employed who work with the private sector will have to pay increased tax after the government said it would continue with plans to level the playing field between employees and those in the gig economy.

From April next year it is estimated that over 170,000 self employed people such as management consultants and construction contractors who are deemed to be performing the role of an employee will face higher tax bills. This is because the businesses that hire them are being forced to determine each workers tax status for the first time.

The tightening of the rules is designed to clamp down on so-called disguised employment where contractors have a lower tax burden than traditional employees despite being seen to perform a similar role.

The draft legislation, called ‘off payroll working rules; by the government was published last week and although the rules have been in place since the year 2000, it has been left up to contractors to adhere to them. The government says it believes that only one in ten of those who should comply are actually doing so which is costing the Treasury more than £1 billion annually.

Initially the change only applies to medium sized and large companies who will be required to consider the employment status of each of its contractors from April.

It is advisable that both contractors and the companies they engage with take the time to review their arrangements to ensure full compliance with the draft legislation as published. Many companies and contractors may currently be unaware of the forthcoming changes which could lead to bigger issues after the April changes.

Dedicated specialist team

At NR Barton our team of contractor specialist are on hand to help should you have any queries over how this change will impact your tax arrangements. You can find more details about the team here.