170,000 self-employed workers could soon pay thousands more in tax - here’s why

Monday, 15th July 2019, 1:49 pm
Updated Saturday, 31st July 2021, 9:15 am
From April 2020, the government is set to expand the off-payroll working rules (Photo: Seeya/Shutterstock)

New employment rules set to be introduced by the government could leave approximately 170,000 self-employed workers paying thousands of pounds extra in tax per year, as well as facing a large pay cut.

From April 2020, the government is set to expand the off-payroll working rules, which are known as IR35, to the private sector.

What are these new laws?

Sign up to our daily Wakefield Express Today newsletter

The i newsletter cut through the noise

The IR35 rules were introduced by Chancellor Philip Hammond in last year's Budget and will apply to medium and large-sized businesses.

These new changes are set to hit those who work in the private sector - including IT workers and management consultants - who currently pay less tax by setting themselves up as private companies.

Tax experts have previously stated that IR35 can reduce a worker’s net income by up to 25 per cent, which would cost the typical limited company contractor thousands of pounds in both additional income tax and national insurance contributions.

How many people will be affected by this?

The government currently estimates that these changes, which were recently revealed in the draft Finance Bill, will affect 170,000 contractors.

How much money could people have cut from their yearly salary?

The exact amount people could lose each month depends on how they earn, but these new laws could leave some with a yearly pay cut of roughly 20 per cent.

Dave Chaplin, chief executive of Contractor Calculator, told The Sun, "HMRC have estimated that 170,000 contractors will be affected, and claims that 90 per cent of them will have their income dropped.

"That's over 150,000 individuals who are about to face up to a 20 per cent pay cut overnight in the next nine months. For many, that’s the cost of their current mortgage."

HMRC stated that between 2020 and 2024, this new measure is set to bring in £3.1bn in additional revenues for the Exchequer.

This article was original published on our sister site, Yorkshire Evening Post.