An estimated 4,000 taxpayers subject to IR35 tax rules for personal services companies are also included in the Inland Revenue’s construction industry tax scheme, under which they suffer 18% tax deductions on payments they receive from contractors.
The interaction with IR35 meant they would have been liable to tax of up to 60% of their income. Repayment of the 20% or so they would have overpaid could have taken up to two years, causing severe cashflow problems.
Under a new concession, those hit by the double tax hit can apply to offset repayments due under the construction industry scheme against their IR35 liabilities.
The move has been welcomed by tax experts, although they commented that it had come very much at the last minute.
Anne Redston, Ernst & Young partner and Chartered Institute of Taxation personal tax spokeswoman, said: ‘The interaction between the two schemes could have led to subcontractors experiencing catastrophic cashflow effects.’
She added: ‘Subcontractors and their accountants should not lose any time in considering whether they are eligible for this concession. If they are eligible they should put in a claim as soon as possible.’
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